SAHANA BUILDERS & DEVELOPERS P. LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 6594/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0891 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 31-10-2014
• Court: TRIBUNAL
• Assessee Lawyers: UTTAM CHAND BOTHRA
• Keywords: Depreciation; Opportunity of being heard; Principle of natural justice; Earning of tax free income; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN , JUDICIAL MEMBER ITA NO. 6594/M/2014 ( 2010 - 2011 ) SAHANA BUILDERS & DEVELOPERS PRIVATE LIMITED, 402, SAGAR AVENUE, 54, S.V. ROAD, ANDHERI (W), MUMBAI 400 058. / VS. DCIT - 8(3), MUMBAI. ./ PAN : AAHCS4782P ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI UTTAMCHAND BOTHRA / RESPONDENT BY : SHRI RAJESH KUMAR, CIT - DR / DATE OF HEARING : 02.03 .2017 / DATE OF PRONOUNCEMENT : 26 .04.2017 / O R D E R PER D. KARUNAKARA RAO, AM: THIS IS THE APPEAL BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT(A) DATED 26.9 .2014 FOR THE AY 2010 - 11.ORIGINALLY, THE ASSESSEE FILED THE FOLLOWING GROUNDS, NAMELY, - 1. THE CIT (A) HAS ERRED IN LAWS AS WELL AS UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN CO NFIRMING THE ADDITION OF RS 21, 13,519/ - MADE ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS. 2. THE CIT (A) HAS ERRED IN LAWS AS WELL AS UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN REJECTING THE CLAIM OF SET OFF OF B/F OF LOSSES AMOUNTING TO RS 21,04,86,007/ - 3. THE CIT (A) HAS ERRED IN LAWS AS WELL AS UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN REJECTING THE PRAYER OF YOUR APPELLANT FOR DETERMINING THE CLOSING VALUE OF WORK IN PROGRESS. 4. THE CIT (A) HAS ERRED IN LAWS AS WELL AS UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN NOT CONSIDERIN G THE VALUE OF OPENING WORKING PROGRESS AS PER INCOME TAX RECORDS WHILE DETERMINING THE TAXABLE INCOME OF THE YEAR UNDER APPEAL. 2 2. SUBSEQUENTLY, DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE FURNISHED THE SET OF ADDITIONAL GROUNDS VIDE LE TTER DATED 1.3.17 AND THEY READ AS UNDER, - (A) AO ERRED IN LAW IN ASSESSING THE INCOME FROM PARTNERSHIP FIRM AMOUNTING TO RS 57,06,478/ - AS TAXABLE INCOME OF THE ASSESSEE (B) THE AO HAS ERRED IN LAW AS WELL AS UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN NOT C ONSIDERING THE OPENING WORK IN PROGRESS OF RS 9,56,76,408/ - AS PER THE INCOME TAX RECORDS AND ON THE BASIS OF VARIOUS ASSESSMENT ORDERS PASSED FOR THE EARLIER ASSESSMENT YEARS. (C) THE AO HAS ERRED IN LAWS AS WELL AS UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE IN NOT CONSIDERING THE FACT THAT THE OPENING WORKING PROGRESS AS PER INCOME TAX ORDER PASSED FOR EARLIER YEARS IS AT RS 9,56,76,408/ - AS AGAINST OPENING WORKING IN PROGRESS SHOWN IN THE PROFIT AND LOSS ACCOUNT IS AT RS 7,81,76,218/ - (D) THE AO HAS ERRED IN LAW AS WELL AS UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN NOT APPRECIATING THE FACTS THAT WHILE PASSING THE ASSESSMENT ORDERS IN THE PAST, ADMINISTRATIVE AND OTHER EXPENSES HAVE BEEN AMORTIZED ON THOSE ASSESSMENT YEARS AND THEREBY A DIFFERENCE HAS AR ISEN BETWEEN THE BOOK FIGURES OR WIP AS PER THE FINANCIAL STATEMENTS AND AS DETERMINED FROM TIME TO TIME AND THEREBY, THE PROFIT ASSESSED BY HIS WILL BE REDUCED BY RS 1,74,84,190/ - . (E) WHILE DETERMINING THE TAXABLE INCOME, THE OPENING WIP BE TAKEN AT RS 9,56, 76,408/ - AS AGAINST THE 7,81,76,218/ - SHOWN IN THE BOOKS OF ACCOUNTS. CONSEQUENTLY, THE ASSESSABLE INCOME BE REDUCED BY RS 1,74,84,190/ - 3. LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ADDITIONAL GROUNDS AND SUBMITTED THAT THE SAID ISSUES WERE RAISED BEFORE THE CIT(A) AND THEY WERE NOT ADJUDICATED ON ME RITS ON THE GROUND THAT THE AOS ORDER DOES NOT SPEAK OF THEM. OTHERWISE, THE TAXING OF THE EXEMPT INCOME AND NON CONSIDERATION OF ASSESSED WIP IN EARLIER AYS IN MAKING THE ASSESSMENTS ARE THE TWO ISSUES RAISED ADDITIONALLY. IN THIS REGARD AND A T THE OUT SET LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE SAID LETTER DATED 1.3. 20 17 AND SUBMITTED PRAYER FOR ADMITTING THE ADDITIONAL GROUNDS BEING LEGAL IN NATURE. IN SUPPORT OF THE SAME, LD AR MENTIONED THAT THE AO HAS NOT DONE THE ASSESSMENT AS PER THE PROVISIONS OF SECTION 143(3) OF THE ACT. ELABORATING THE SAME, LD AR SUBMITTED THAT IT IS THE DUTY OF THE AO TO MAKE A MENTION OF THE DETAILS OF THE BROUGHT FORWARDED LOSSES ON ONE HAND AND ALSO TO ADOPT THE CORRECT OPENING WIP AS DETERMINED BY HIM IN THE EARLIER AYS. AO DISTURBED THE WIP FIGURES IN THE PAST HAS ERRONEOUSLY ADOPTED THE BOOK FIGURES IN THE YEAR UNDER CONSIDERATION. AFTER CONSIDERING THE ARGUMENTS AND ALSO THE PRIMA FACIE DEFECTS I N THE ASSESSMENT ORDER OF THE AO, IN OUR OPINION, THE ADDITIONAL GROUNDS, BEING LEGAL IN NATURE, ARE ADMITTED. WHAT WEIGHED 3 HEAVILY IN FAVOUR OF T HE AS S ESSEE LEADING THE SAID ADMITTING THE GROUNDS RELATES TO FAILURE OF THE AO IN MAKING PROPER AND ERROR FREE ASSESSMENT ON FACTS. ITAT IS THE LAST FACT FINDING BODY AND HOW CAN WE PERMIT LEGALLY THE TAXATION OF ANY EXEMPT SHARE INCOME IN THE FIRM. SIMILARLY , AO IS UNDER OBLIGATION TO ADOPT THE ALTERED FIGURES IN THE PAST ASSESSMENT ORDERS WHETHER IS ON ACCOUNT OF B/F LOSSES OR DEPRECIATION SCHEDULES, WIP FIGURES ETC. IT IS STRANGE THAT THE CURRENT ASSESSMENT ORDER IS EXTREMELY IMPROPER AND UNSUSTAINABLE ON THE SE ASPECTS. THEREFORE, CONSIDERING THE PECULIAR FACTS OF THIS CASE, THEY ARE ADMITTED TAKEN UP FOR ADJUDICATION. TO START, THE BACKGROUND FACTS OF THE CASE ARE SUBMITTED AS UNDER: 4. BACKGROUND FACTS : THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPER. ASSESSEE FILED THE RETURN OF INCOME OF RS 59,29,220/ - AND THE AO DETERMINED THE ASSESSED INCOME AT RS 1,26,57,700/ - . WHILE FILING THE SAME, THE AO ERRONEOUSLY CONSIDERED THE EXEMPT SHARE INCOME IN THE FIRM IN THE COMPUTATION OF INCO ME. AO MADE ADDITIONS ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS AND THE PROVISIONS OF SECTION 35D OF THE ACT. IN THE ASSESSMENT ORDER, THERE IS NO REFERENCE TO THE FACTS RELATING TO THE B/F LOSSES AS WELL AS THE CHANGES MADE BY HIM IN THE EARLIER AYS TO THE WIP ACCOUNT OF THE ASSESSEE. DURING THE FA A PROCEEDINGS, ASSESSEE CONTESTED THE ABOVE ADDITIONS AND ALSO RAISED THE ABOVE EXTRACTED ADDITIONAL GROUNDS IN DIFFERENT WORDS. AT THE END OF THE PROCEEDING, FAA DELETED ADDITION OF BAD DEBTS PARTLY AND CONFIRMED THAT PART OF THE DEBTS WHICH ACTUALLY ARE THE INTEREST ACCRUED AND WRITTEN OFF AS BAD DEBTS. CIT(A) DID NOT ADMIT AND ADJUDICATE THE ADDITIONAL GROUNDS RELATING TO THE ADOPTING OF THE CORRECT WIP ACCOUNT, TAXATION OF THE EXEMPT SHARE INCOME, GRANTING OF TH E CARRY FORWARD BENEFIT TO THE DULY ASSESSED LOSSES. AGGRIEVED WITH THE SAME, THE ASSESSEE IS IN APPEAL BEFORE US WITH THE ABOVE EXTRACTED GROUNDS AND THE ADDITIONAL GROUNDS ADMITTED BY US CONSIDERING THE PECULIAR FACTS OF THIS CASE AND THE LEGAL NATURE OF THE GROUNDS. WE SHALL NOW TAKE UP THE ISSUE WISE ADJUDICATION IN THE SUBSEQUENT PARAGRAPHS OF THIS ORDER. 5. ISSUE OF BAD DEBTS : RELEVANT FACTS ARE THAT THE ASSESSEE CLAIMED THE BAD DEBTS OF RS 80,66,382/ - . AFTER EXAMINING THE SAID DEBTS, AO ADDED A SUM OF RS 67,02,751/ - ( 4 RS 21,22,942/ - + 45,79,809/ - ) OUT OF THE TOTAL BAD DEBTS OF RS 80,66,382/ - FOR WANT OF DETAILS. FAA OBSERVED THAT THE ASSESSEE SUE MOTTO DISALLOWED A SUM OF RS 48 LAKHS AND THEREFORE HE CONFIRMED THE BALANCE SUM OF RS 21,13,519/ - BEING T HE INTEREST ACCRUED ON THE SAID DEBTS. AO DISALLOWED THE SAME AND THE CIT(A) CONFIRMED THE SAME ATTRIBUTING THE FAILURE TO ASSESSEE, WHO DID NOT DEMONSTRATE THAT THE SAID SUM IS CLAIMED IN THE P& L ACCOUNT IN THE PAST. BEFORE US, LD AR FOR THE ASSESSEE DEMO NSTRATED IN WRITING THAT THE ASSESSEE FOLLOWS PROJECT COMPLETION METHOD. REGARDING INTEREST RECEIPTS, IT IS THE SUBMISSION OF THE ASSESSEE THAT THE INTEREST RE CEIVED FRO M THE DEBTORS WAS REDUCED FROM THE TOTAL EXPENSES AND BALANCE IS CONSIDERED AS WIP THER EBY THE SAI D INTEREST RECEIPTS ARE ASSESSED TO TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. ON EXAMINING THE WIP ACCOUNTS OF THE ASSESSEE FOR VARIOUS YEARS, WE FIND THE CLAIM OF THE ASSESSEE IS PROPER AND THE ASSESSEE ENTITLED TO RE LIEF ON THIS PART OF THE BAD DEBTS TOO. WE DIRECT THE AO GRANT RELIEF AS PER THE LAW. THE ASSESSE E RELIED ON THE JURISDICTIONAL HIGH COURT JUDG M ENT IN THE CASE OF STAR CHEMICALS P LD 313 ITR 126, PADAMJI PULP AND PAPER MILLS LTD ITA 1590/2013 DT 5.8. 20 15 ETC IN SUPPORT OF THE ABOVE. WE FIND THE SAID DECISION HELPS THE ASSESSEE. ACCORDINGLY, THIS PART OF THE ISSUE AND RELATED GROUNDS ARE ALLOWED. 6. ADJUSTMENT TO THE WIP ACCOUNT : IT WAS ALREADY DISCUSSED THAT THE ASSESSEE IS A BUILDER AND THE DEVELOPER. H E FOLLOWS THE PROJECT COMPLETION METHOD IN RESPECT OF THE PROJECTS. IN THIS METHOD, MAINTAINING THE WIP ACCOUNT IS AN ESSENTIAL INGREDIENT OF THE ACCOUNTS. IN THE AY 2005 - 06, THE AO MADE VARIOUS ADJUSTMENTS TO THE WIP ACCOUNT. AO LOADED VARIOUS ADMINISTRA TIVE EXPENSES, FINANCE EXPENDITURE, PRELIMINARY EXPENDITURE ETC AND ALSO CHANGED THE CLAIMS OF THE ASSESSSEE RELATING TO INTEREST INCOME AND EXPENDITURE. OVER THE YEARS, THE SAID ADJUSTMENTS LEAD TO THE CREATION OF CLOSING WIP ACCOUNT OF RS 9,44,22,760/ - B Y THE END OF THE AY 2010 - 11. HOWE VER, WHILE MAKING THE CURRENT AY 2010 - 11, THE SAID AMOUNT OF WIP WAS IGNORED AND THE AO ADOPTED THE WIP OF RS 7,65,38,570/ - IE AS PER THE ASSESSEES BOOKS. IT LEAD TO THE SITUATION, WHERE BY THE ASSESSEE IS PUT TO DISADVANT AGE TO THE EXTENT OF RS 1,74,84,190/ . ASSESSEE MADE A PRAYER BEFORE THE CIT(A) FOR NECESSARY DIRECTION TO THE 5 AO. HOWEVER, FAA REJECTED THE SAME ON TECHNICAL GROUNDS. BEFORE US, LD AR MADE ELABORATE SUBMISSIONS AND FILED VARIOUS DOCUMENTS TO SUPPORT HIS CL AIM. OF COURSE, LD DR OPPOSED THE ADMITTANCE OF THE ADDITIONAL GROUND AND THE PAPERS FILED BEFORE US. AFTER HEARING THE PARTIES, WE ARE OF THE VIEW THAT IT IS IN THE INTEREST OF JUSTICE THE ASSESSEE MUST NOT BE PUT TO DIFFICULTY FOR NO MISTAKE OF HIM. IN OUR VIEW IT IS THE DUTY OF THE AO TO MAKE PROPER ASSESSMENT. AO SHOULD HAVE EXAMINED THE PAST ASSESSMENTS FOR THE DETAILS OF THE ALTERED WIP FIGURES BEFORE HE COMPLETE THE CURRENT ASSESSMENT. CONSIDERING THE ABOVE , WE ARE OF THE VIEW THAT THE AO MUST REMOV E THE MISTAKES IN THE ASSESSMENT AND ADOPT THE CORRECT WIP CONSIDERING THE CHANGES MADE IN THE PAST TO THE SAID ACCOUNT. IN THE REMAND PROCEEDINGS, AO SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, RELEVANT GROUNDS AND ADDI TIONAL GROUNDS ARE ALLOWED , IN PRINCIPLE , FOR STATISTICAL PURPOSE. HOWEVER, THE SAME IS SUBJECTED TO THE FINDING OF THE AO IN THE REMAND PROCEEDINGS. FURTHER, ON THE ISSUE OF LOSSES REF ERRED TO IN GROUND NO 2 ABOVE, WE GRANT SIMILAR DIRECTION TO THE AO IN CONNECTION WITH THE GROUNDS/ADDITIONAL GROUNDS RELATING TO THE MENTIONING OF THE BROUGHT F ORWARD LOSSES TO MENTION CATEGORICALLY AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 72 OF THE ACT IF THE ASSESSEE IS ENTITLED TO THE CLAIM OF CARRY FORWARD OF SAI D LOSSES. THEREFORE, AO IS DIRECTED TO EXAMINE THE RECORDS THOROUGHLY AND AMEND THE ASSESSMENT ORDER FOR THE CURRENT YEAR AS PER THE LAW. ACCORDINGLY, RELEVANT GROUNDS AND ADDITIONAL GROUNDS ARE ALLOWED IN PRINCIPLE FOR STATISTICAL PURPOSE. AO IS DIRECTED TO GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE SET PRINCIPLES OF NATURAL JUSTICE. 7. TAXATION OF THE EXEMPT SHARE INCOME : ASSESSEE EARNED A SHARE INCOME OF RS 57,06,478/ - AS PER THE P AND L ACCOUNT PLACED AT PAGE 152 OF THE PAPER BOOK. NOTES TO ACCOUNTS NO 6 ATTACHED TO FINANCIAL STATEMENTS PLACE D AT PAGE 162 OF THE PAPER BOOKS IS RELEVANT. IN THE COMPUTATION OF INCOME, THERE IS MISTAKE AND THE SAID INCOME IS NOT CLAIMED AS EXEMPT. SUCH INCOME IS EXEMPT AS PER THE PROVISIONS OF SECTION 10(2A) OF THE ACT. IN THE ASSESSMENT THE AO CHARGED SUCH EXEMPT INCOME TAX IGNORING THE SAID PROVISIONS. IN THIS BACK GROUND OF THESE FACTS, THE ASSESSEE RAISED THE SAID ADDITIONAL GROUND. ON HEARING BOTH THE PARTIES, WE FIND THAT THE ASSESSMENT ORDER OF THE AO IS NOT SUSTAINABLE ON MERITS. WHO CAN AO SUBJECT SUCH EXEMPT INCOME TO TAX? NO FAILURE FROM 6 ASSESSEE SIDE SHALL JUSTIFY SUCH DECISION OF THE AO. AO IS UNDER STATUTORY OBLIGATION TO MAKE PROPER ASSESSMENT GRANTING ALL ELIGIBLE DEDUCTIONS AN D EXEMPTIONS AS THE CASE MAY BE. ADMITTING THE ADDITIONAL GROUND CONSIDERING THE PRINCIPLES OF NATURAL JUSTICE, WE DIRECT TO AO TO EXAMINE THE CLAIM ON THIS SHARE INCOME AMEND THE ASSESSMENT IF THE SAME IS IMPROPER. IN THE REMAND PROCEEDINGS, THE AO IS DIR ECTED TO GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AS PER THE SET PRINCIPLES OF NATURAL JUSTICE. 8. ACCORDINGLY, RELEVANT ADDITIONAL GROUND IS ALLOWED FOR STATISTICAL PURPOSE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNC ED IN THE OPEN COURT ON 2 6 T H APRIL, 2017. S D / - S D / - ( SANDEEP GOSAIN) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 26.04.2017 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI