ACIT, CIRCLE 2 (1)(1), MUMBAI V. BHISHMA REALTY LTD., MUMBAI

ITA 6767/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 4633 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 04-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: THARIAN OOMMEN
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , B BENCH MUMBAI BEFORE : SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI M.BALAGANESH, A CCOUNTANT MEMBER ITA NO. 6767 /MUM/ 20 19 ( ASSESSMENT YEAR : 2011 - 12 ) ACIT, CIRCLE - 2(1)(1) MUMBAI ROOM NO. 561, 5 TH FLOOOR AAYAKAR BHAVAN M.K.ROAD, MUMBAI 400 020 VS. M/S. BHISHMA REALTY LTD., SIR CITHALDAS CHAMBERS 16, MUMBAI SAMACHAR MARG FORT, MUMBAI 400 001 PAN/GIR NO. AAACB5995N (APPELLANT ) .. (RESPONDENT ) CO NO. 52/MUM/2021 (ARISING OUT OF ITA NO. 6767 /M UM/ 2019) ( ASSESSMENT YEAR : 2011 - 12 ) M/S. BHISHMA REALTY LTD., SIR CITHALDAS CHAMBERS 16, MUMBAI SAMACHAR MARG FORT, MUMBAI 400 001 VS. ACIT, CIRCLE - 2(1)(1) MUMBAI ROOM NO. 561, 5 TH FLOOOR AAYAKAR BHAVAN M.K.ROAD, MUMBAI 400 020 PAN/GIR NO. AAACB599 5N (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI THARIAN OOMMEN ASSESSEE BY SHRI K. GOPAL & MS. NEHA PARANJPE DATE OF HEARING 0 2 /0 8 /2021 DATE OF PRONOUNCEMENT 30 / 09 /202 1 ITA NO . 6767/MUM/2019 & CO NO.52/MUM/2021 M/S. BHISHMA REALTY LTD., 2 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN ITA NO. 6767/MUM/2019 & CO NO.52/MUM/2021 FOR A.Y. 2011 - 12 ARISE OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 4, MUMBAI IN APPEAL NO. CIT(A) - 4/E - FILE - 160/DCIT 2(1)(1)/2016 - 17 DA TED 02/08/2019 (LD. CIT(A) IN SHORT) AGAINST THE ORDER OF ASSESSMENT PASSED U/S.143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) DATED 30/12/2016 BY THE LD. DY. COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1), MUMBAI (HEREINAFTER R EFERRED TO AS LD. AO). 2. LET US TAKE UP THE APPEAL OF THE REVENUE WHEREIN THE ONLY ISSUE TO BE DECIDED IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN GRANTING RELIEF TO THE ASSESSEE IN THE SUM OF RS.2,09,45,388/ - IN THE FACTS AND CIRCUMSTANCES OF THE C ASE. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF PROPERTY DEVELOPMENT AND HAD FILED ITS RETURN OF INCOME FOR THE A.Y. 2011 - 12 ON 28/09/2011 DECLARI NG TOTAL INCOME OF RS.79,64,359/ - . THE ASSESSMENT WAS ORIGINALLY COMPLET ED U/S.143(3) OF THE ACT ON 13/0 2/2014 DETERMINING TOTAL INCOME AT RS.99 , 89 , 050/ - . SUBSEQUENTLY, THIS ASSESSMENT WAS REOPENED U/S.147 OF THE ACT VIDE ISSUANCE OF NOTICE U/S.148 OF THE ACT ON 16/03/2016 AFTER RECORDING REASONS FOR REOPENING THE ASSESSMENT. THE ASSESSEE IN RESPONSE TO NOTICE U/S.148 OF THE ACT FILED ITS RETURN OF INCOME ON 14/04/2016 AND SOUGHT FOR REASONS RECORDED WHICH WAS DULY PROVIDED TO THE ASSESSEE BY THE LD. AO VID E LETTER DATED 15/06/2016. THE ASSESSEE FILED ITS OBJECTIONS TO REOPENING THE ASSESSMENT ON 08/07/2016 AND THE SAID OBJECTIONS WERE DISPOSED OF BY THE LD. AO BY PASSING A SPEAKING ORDER ON 17/11 /201 6 . THEREAFTER, THE ITA NO . 6767/MUM/2019 & CO NO.52/MUM/2021 M/S. BHISHMA REALTY LTD., 3 NOTICE U/S.1 43( 2 ) OF THE ACT DATED 19 / 1 2 /201 6 WAS ISSUED AND SERVED ON THE ASSESSEE. THE LD. AO OBSERVED THAT ASSESSEE HAS NOT STARTED ITS COMMERCIAL ACTIVITY DURING THE YEAR AND THEREFORE, THE EXPENSES AT RS.68,7 6 ,49,355/ - RELATING TO CONSTRUCTION / DEVELOPMENT ACTIV ITY WAS ADDED TO WORK - IN - PR OGRESS (WIP) AND ACCORDINGLY, THE TOTAL CLOSING WIP WAS ARRIVED AT RS.194,93,30,907/ - . THE LD. AO OBSERVED THAT ASSESSEE HAD EARNED INTEREST ON FD INCOME OF RS.3,04,38,317/ - AND DIVIDEND OF RS.2,57,50,179/ - . THE LD. AO ALSO OBSERVED THAT ASSESS E E HAD DEBIT ED CONSTRUCTION EXPENSES OF RS.69,44,18,338/ - AND ADMINISTRATIVE EXPENSES OF RS. 1,63,37,743/ - (TOTALING TO RS.71,07,56,081/ - ) AND OUT OF THIS ONLY RS.68,76,49,355/ - HAS BEEN TRANSFERRED TO WIP AND REST OF THE EXPENSES AMOUNTING TO RS.2,31,06,726/ - HAS BEE N CLAIMED AS DEDUCTION. ACCORDINGLY, THE LD. AO SHOW - CAUSED THE ASSESSEE AS TO WHY THE EXPENSES CLAIMED SHOULD NOT BE ADDED TO WORK - IN - PROGRESS INSTEAD OF ADJUSTING THE SAME AGAINST INTEREST INCOME. IN RESPONSE, ASSESSEE VIDE LETTER DATED 22/12/2016 SUBMIT TED THAT ASSESSEE HAS ULTIMATELY CLAIMED EXPENSES ONLY TO THE EXTENT OF RS.39,31,610/ - IN THE RETURN OF INCOME. SINCE, THERE WAS A DISALLOWANCE OF EXPENSES U/S.14A OF THE ACT IN THE SUM OF RS.20,24,694/ - UNDER THE CLAIM OF EXPENSES STOOD ONLY AT RS.19,06,9 16/ - AND REST OF THE EXPENSES HAD BEEN DULY TRANSFERRED TO WIP. ACCORDINGLY, THE ASSESSEE SUBMITTED THAT THERE IS NO QUESTION OF FURTHER DISALLOWANCE THAT WOULD ARISE IN THIS CASE. THE LD. AO IGNORED THE CONTENTIONS OF THE ASSESSEE AND OBSERVED THAT FROM T HE FINANCIAL STATEMENTS OF THE ASSESSEE , THE ASSESSEE HAD SHOWN SALES IN F.Y.2009 - 10 OF RS.76.44 CRORES AND THE SAME IS NOT FROM SALE OF PROPERTY OF THIS PROJECT BUT FROM OTHER ACTIVITIES AND THAT ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD AND THEREF ORE, THE ENTIRE EXPENSES INCURRED ON THE PROJECT SHOULD BE ADDED TO CLOSING WORK - IN - PROGRESS AND CANNOT BE ALLOWED AS DEDUCTION TO BE SET OFF AGAINST OTHER HEADS OF INCOME. HE ALSO OBSERVED THAT INTEREST INCOME EARNED BY THE ASSESSEE IS TO BE TAXED SEPARAT ELY UNDER THE HEAD INCOME FROM OTHER SOURCES. ACCORDINGLY, HE DISALLOWED A SUM OF RS.2,09,45,388/ - (RS.2,31,06,726/ - - ( 1,36,644 + 20,24,694) BEING EXPENSES EXCLUSIVELY INCURRED FOR THE PURPOSE OF PROPERTY DEVELOPMENT WHICH ARE TO BE ADDED TO THE CLOSIN G WORK - IN - PROGRESS. ITA NO . 6767/MUM/2019 & CO NO.52/MUM/2021 M/S. BHISHMA REALTY LTD., 4 3.1. THE ASSESSEE BEFORE THE LD. CIT(A) POINTED OUT THAT THE AMOUNT CALCULATED BY THE LD. AO IN THE SUM OF RS.2,09,45,388/ - IS COMPLETELY WRONG IN AS MUCH AS ASSESSEE HAD CLAIMED EXPENSES ONLY AMOUNTING TO RS.39,31,610/ - (RS.40,68,254 - RS.1,36,644) IN THE RETURN OF INCOME. THE ASSESSEE ALSO PLACED CORRECT WORK INGS OF WIP AS UNDER: - PARTICULARS AMOUNT (RS.) OPENING WIP 126,16,81,552 ADD: EXPENSES TRANSFERRED TO WIP 70,66,87,827 LESS: INTEREST INCOME TRANSFERRED TO WIP 1,90,38,472 C LOSING WIP 194,93,30,907 3.2. THE ASSESSEE ALSO SUBMITTED THAT OUT OF TOTAL EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT, MAJOR EXPENSES WERE TRANSFERRED TO WIP. THE DETAILS OF THE SAME ARE AS UNDER: - PARTICULARS DEBITED TO P&L TRANSFERRED T O WIP CLAIMED IN THE ROI CONSTRUCTION EXPENSES 69,44,18,338 69,44,18,338 NIL ADMINISTRATIVE AND OTHER EXPENSES 1,63,37,743 1,22,69,489 40,68,254 TOTAL 71,07,56,081 70,66,87,827 40,68,254 3.3. THE ASSESSEE PLEADED THAT FROM THE AFOR ESAID TABLE IT COULD BE CLEAR THAT OUT OF TOTAL EXPENSES CLAIMED IN THE RETURN OF INCOME AMOUNTING TO RS.40,68,254/ - , A SUM OF RS.1,36,644/ - HAS ALREADY BEEN DISALLOWED BY THE ASSESSEE IN THE RETURN AND ACCORDINGLY, THE NET EXPENSES CLAIMED IN THE RETURN W ORKS OUT TO RS.39,31,610/ - ONLY. THE ASSESSEE ALSO PLEADED THAT OUT OF THE TOTAL EXPENSES CLAIMED IN THE RETURN OF INCOME OF RS.39,31,610/ - , A SUM OF RS.33 LAKHS TOWARDS COMMISSION PAID TO DIRECTORS ON ACCOUNT OF MANAGERIAL REMUNERATION IN ACCORDANCE WITH SECTION 198 OF THE COMPANIES ACT 1956. THE ITA NO . 6767/MUM/2019 & CO NO.52/MUM/2021 M/S. BHISHMA REALTY LTD., 5 ASSESSEE FURTHER PLEADED THAT AUDIT FEE OF RS.1,10,300/ - WAS PAID, LEGAL AND PROFESSIONAL FEES OF RS.4,59,940/ - WAS PAID FOR REGISTRATION FOR OFFICE PREMISES TAKEN ON LEAVE / LICENSE BASIS AND CYBER STATION EXPENS ES OF RS.10,258/ - FOR MAINTENANCE OF COMPANYS WEBSITE. APART FROM THIS, ASSESSEE HAS INCURRED EXPENDITURE TOWARDS PROFESSION TAX, FILING FEES, BOARD MEETING EXPENSES ETC., IN THE NORMAL COURSE OF ITS BUSINESS. THE ASSESSEE PLEADED THAT THE AFORESAID EXPE NSES COULD NOT BE TRANSFERRED TO CLOSING WORK - IN - PROGRESS AS THEY ARE NOT INCURRED FOR THE PROJECT BUT ROUTIN E ADMINISTRATIVE EXPENSES WHICH ARE MANDATORILY TO BE INCURRED IN THE NORMAL COURSE OF THE BUSINESS OF THE ASSESSEE. 3.4. THE LD. CIT(A) ON PERUSA L OF THE PROFIT AND LOSS ACCOUNT AND VARIOUS DETAILS FILED BY THE ASSESSEE OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, SOME OF THE FLATS WERE SOLD AND TOTAL RECEIPTS RECEIVED IN LIEU OF SUCH SALES WHICH WAS KEPT IN THE FORM OF ADVANCE AMOUNTING TO R S.19642.72 CRORES AS ON 31/03/201 1 UNDER THE HEAD CURRENT LIABILITIES IN THE BALANCE SHEET. SINCE THE CONSTRUCTION ACTIVITIES WERE GOING ON AND SALES WERE ALSO BOOKED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, THE LD. CIT(A) OBSERVED THAT THE FIN DING OF THE LD. AO REGARDING NON - INITIATION OF BUSINESS ACTIVITIES TO BE FACTUALLY INCORRECT. HE OBSERVED THAT SINCE THE BUSINESS WAS CARRIED OUT BY THE ASSESSEE DURING THE YEAR , THE ROUTINE BUSINESS EXPENSES INCURRED BY THE ASSESSEE TO THE TUNE OF RS.39,3 1,610/ - AS DETAILED ABOVE , BECOMES AN ALLOWABLE EXPENDITURE. 4. AGGRIEVED BY THIS ORDER, THE REVENUE IS IN APPEAL BEFORE US ON MERITS AND ASSESSEE IS IN CROSS OBJECTION BEFORE US ON INVALID ASSUMPTION OF JURISDICTION U/S.147 OF THE ACT. 5. BEFORE US, THE LD. DR MERELY REITERATED THE CONTENTIONS OF THE LD. AO WHICH HAD ALREADY BEEN DULY MET LINE BY LINE BY THE LD. CIT(A) IN HIS ORDER WHICH HAD ALREADY BEEN ELABORATED HEREINABOVE. THE CATEGORICAL FINDINGS RECORDED BY THE LD. CIT(A) THAT ASSESSEE HAD INDEED COMMENCED BUSINESS ACTIVITIES DURING THE YEAR AND HENCE, THE REGULAR BUSINESS EXPENSES INCURRED IN THE NORMAL COURSE BECOMES AN ALLOWABLE EXPENDITURE, WAS NOT CONTROVERTED BY ITA NO . 6767/MUM/2019 & CO NO.52/MUM/2021 M/S. BHISHMA REALTY LTD., 6 THE LD. DR BEFORE US WITH ANY MATERIAL EVIDENCES. HENCE, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF LD. CIT(A) GRANTING RELIEF TO THE ASSESSEE ON MERITS. 5.1. SINCE, THE APPEAL OF THE REVENUE IS DISMISSED, WE DO NOT DEEM IT FIT TO ADJUDICATE THE LEGAL GROUND RAISED BY THE ASSESSEE IN THE CROSS OBJECTIONS AND IT IS LEFT OPEN , AS AD JUDICATION OF THE SAME IS ACADEMIC IN NATURE. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED AND CROSS OBJECTION OF THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED ON 30 / 09 /202 1 BY WAY OF PROPER MENTIONING IN THE NOTICE BOARD. SD/ - ( VIKAS AWASTHY ) SD/ - (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 30 / 09 / 2021 KARUNA , SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//