ITO, Nashik V. Shri Baburao Vishwanath Bagade, Nashik

ITA 693/PUN/2010

• Counselvise Citation: 69324514 RSA 2010
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 06-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S PRAVEENA
• Keywords: Business expenditure
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 693 / P N/ 20 10 ASSESSMENT YEAR : 2006 - 07 INCOME - TAX OFFICER, WARD 1(1), NASHI K VS. SHRI BABURAO VISHWANATH BAGADE, PLOT NO. 27, BAGADE SADAN VISE MALA, COLLEGE ROAD, NASHIK (APPELLANT) (RESPONDENT) PAN NO. AEKPB0054P APPELLANT BY: SMT. S. PRAVEENA RESPONDENT BY: SHRI NIKHIL PATHAK DATE OF HEARING : 23 - 04 - 2013 DATE OF PRONOUNCEMENT : 21 - 0 6 - 2013 ORDER P ER R.S. PADVEKAR , JM : - IN THIS APPEAL, THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER OF THE LD. CIT(A) - I, NASHIK DATED 26 - 02 - 2010 FOR THE A.Y. 2006 - 07. IN THIS APPEAL THE REVENUE HAS TAKEN THE ISSUES ARISING IN THE A.Y. 2006 - 07. THE GROUND NO. 1 READS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN ALLOWING THE INTEREST AGGREGATING TO RS.30,83,466/ - WHICH PERTAINS TO A.Y. 2003 - 04 TO A.Y. 2006 - 07 IN SPITE OF THE FACTS THAT AL L INTEREST ON LOANS APPEARING IN THE BALANCE SHEET WHICH EFFECT FROM 01/04/2002 TILL 31/ - 3/2006 HAVE BEEN CLAIMED IN THE ACCOUNT FOR EACH YEAR AND HENCE HAVE BEEN REDUCED FROM THE INCOME OF EACH YEAR, THEREBY ERRONEOUSLY ALLOWING A DOUBLE CLAIM OF INTEREST IN THE A.Y. 2006 - 07. 2. THE FACTS REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE IS IN THE BUSINESS OF LAND DEVELOPERS. WHILE COMPLETING THE ASSESSMENT IN THE A.Y. 2006 - 07 , T HE ASSESSING OFFICER MADE THE DISALLOWANCE OF BANK INTEREST OF RS. 2,71,26 5/ - . THE ASSESSING OFFICER HAS OBSERVED THAT IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAS DEBITED BANK INTEREST OF RS.2,71,265/ - WHICH WAS MAINLY IN RESPECT OF SAMTA NAGRI SAHAKARI PATSANSTHA, ICICI, HDFC AND GE COUNTRYWIDE LOAN ETC. T HE ASSESSEE 2 ITA NO. 693/PN/2010, SHRI BABURAO VISHWANATH BAGADE, NASHIK HAS STATED THAT HE IS DEALING IN LAND AND INCURRING EXPENSES TOWARDS PURCHASE OF LAND AND SETTLEMENT EXPENSES TOWARDS THE COST OF LAND AND THE COST OF LAND IS TRANSFERRED TO PROFIT AND LOSS ACCOUNT. THE ASSESSEE FURTHER STATED THAT ALL EXPENSES ARE TRANSFERRE D TO COST OF LAND AND IF ANY LOAN IS TAKEN FOR DEVELOPMENT, IN SUCH CASE INTEREST PAID ON SUCH LOAN IS BEING CAPITALIZE. THE ASSESSING OFFICER MADE THE DISALLOWANCE OF RS.2,71,265/ - ON THE REASON THAT AS PER BALANCE SHEET THE ASSESSEE WAS HAVING CASH IN H AND TO THE EXTENT OF RS.49,62,003/ - AND THE ASSESSEE COULD HAVE USED THE SAID CASH FOR REDUCING THE BANK LIABILITY. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A). 3. IT IS PERTINENT TO NOTE HERE THAT THE LD. CIT(A) HAS PASSED COMMON ORDER INVOLV ED IN THE A.YS. 2003 - 04 TO 2006 - 07. THE LD. CIT(A) HAS DECIDED THE ISSUE OF THE DISALLOWANCE OF THE BANK INTEREST FOR THE A.YS. 2003 - 04 TO 2006 - 07 AND THE OPERATIVE PART AND RELEVANT DISCUSSION AND FINDING OF THE LD. CIT(A) IS AS UNDER: 11. DISALLOWANCE OF BANK INTEREST TOTALING TO RS.30,17,698/ - INCURRED IN THE F.Y. 2002 - 2003 - RS.10,89,910/ - , F.Y.2003 - 2004 - RS.10 ,03,797/ - , F.Y.2004 - 2005 - RS.8 ,25,212/ - AND F .Y. 2005 - 2006 RS.1 ,64,547/ - THE A.O.HAS DISALLOWED THE A BOVE ME NTIONED ACTUAL INTEREST EXPENDITURE INC URRED BY THE APPELLANT STATING THAT RETURNS FOR THE ABOVE MENTIONED YEARS WERE FILED AFTER RECEIPT OF THE NOTICES FROM THE DEPARTMENT AND THE RETURNS WERE NOT VOLUNTARILY FILED. ANOTHER REASON FOR THE DISALLOWANCE STATED BY THE A.O. IS THAT THE THIRD CO - OW NER OF THE LAND I . E. M/S. IMMEDIATE CONSTRUCTIONS, WHO WAS ONLY AN INVESTOR, HAS DECLARED SUBSTANTIAL PROFIT. 11.1 IN THIS REGARD, APPELLANT SUBMITTED THAT BOTH THE REASONS STATED BY THE A.O. ARE INCORRECT AND HAS NOTHING TO DO WITH THE EXPENDITURE ACTUA LLY INCURRED BY THE APPELLANT DURING THE SAID PERIOD. THE APPELLANT POINTED - OUT THAT THE EXPENDITURE INCURRED BY HIM WAS UNDISPUTEDLY BUSINESS EXPENDITURE AND THE A.O. HAS HIMSELF ALLOWED THE SIMILAR EXPENDITURE INCURRED BY THE APPELLANT UPTO THE F.Y.2001 - 2002. THE APPELLANT FURTHER POINTED - OUT THAT THE A.O. ASSESSING INC O ME OF THE CO - OW NER OF THE LAND SHRI DHARMENDRA D. VARU HAS ALLOWED SIMILAR EXP ENDITURE. THE APPELLANT CLAIMED THAT IT IS UNDISPUTED ACCOUNTING PRINCIPLE THAT TO ARRIVE AT BUSINESS PROFIT ALL EXPENDITURES OF BUSINES S ARE TO BE DEDUCTED FROM GROSS INCOME OF THE BUSINESS AND IT IS IRRELEVANT WHETHER THE RETURN WAS FILED VOLUNTARILY OR IN RESPONSE TO NOTICE ISSUED BY THE A..O. THE APPELLANT SUBMITTED THAT OTHER REASON OF THE A.O. FOR THE DISAL LOWANCE THAT THE THIRD CO - OWNER WHO WAS INVESTOR HAS DECLARED SUBSTANTIAL PROFIT IS IRRELEVANT AND HAS NO BEARING ON THE ISSUE UNDER APPEAL. THE APPELLANT HAS FURTHER POINTED - OUT THAT THE EXPENDITURE IN RESPECT OF KAKAD BAUG PROJECT WAS CORRECTLY 3 ITA NO. 693/PN/2010, SHRI BABURAO VISHWANATH BAGADE, NASHIK CLAIMED I N THE YEAR OF SALE OF LAND AT KAKAD BAUG IN VIEW OF MATCHING PRINCIPLE OF THE ACCOUNTING. 11.2 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORDER AND REMAND REPORT OF THE A.O. AN D SUBMISSIONS OF THE APPELLANT. THE EXPENDITURE CLAIMED BY THE APPELLANT WAS U NDISPUTEDLY INCURRED BY THE APPELLANT FOR THE PURPOSES OF HIS BUSINESS AND HENCE ALLOWABLE EXPENDITURE. THE REASONS STATED BY THE A.O. THAT THE RETURNS WERE NOT VOLUNTARILY FILED AND THE THIRD CO - OWNER WHO WAS INVESTOR HAS DECLARED SUBSTANTIAL PROFIT AR E I RRELEVANT AND DO NOT JUSTIFY THE DISALLOWANCE OF EXPENDITURE, AS TO ARRIVE AT TAXABLE INCOME ALL EXPENDITURES INCURRED FOR THE PURPOSE ARE TO BE DEDUCTED FROM GROSS INCOME OF THE BUSINESS. THE APPELLANT HAS CORRECTLY CLAIMED THE EXPENDITURE OF INTEREST IN THE YEAR OF SALE OF LAND AT KAKAD BAUG. IN VIEW OF THE ABOVE FACTS AND DISCUSSION AND CONSIDERING THE CONTENTIONS RAISED BY THE APPELLANT, THE DISALLOWANCE OF BANK INTEREST RS.30,17,698/ - IS DELETED. 4. I N FACT, THE ADDITION OF RS.30,17,698/ - DELETED BY THE LD. CIT()A IS AGGREGATE OF THE DISALLOWANCE MADE IN THE A.YS. 2003 - 04, 2004 - 05, 2005 - 06 AND 2006 - 07. W E FIND THAT THE BANK INTEREST IS APPEARING OF RS.1,64,547/ - FOR THE A.Y. 2006 - 07. WE FIND THAT IN THE GROUND TAKEN BY THE REVENUE THE ENTIRE DISA LLOWANCE DELETED BY THE ASSESSEE TOWARDS THE INTEREST ADDITION FOR THE A.Y. 2003 - 04 TO 2006 - 07 H AS BEEN CHALLENGED. T HE ONLY CONTENTION OF THE REVENUE IS THAT THERE IS A DOUBLE DEDUCTION OF THE INTEREST FOR THE A.Y. 2006 - 07. AT THE FIRST INSTANCE WE FIND NO MERIT IN THE CONTENTION OF THE DEPARTMENT. ADMITTEDLY THE ASSESSEE HAS CAPITALIZED THE EXPENDITURE WHENEVER THE LAND IS PURCHASED . LD. CIT(A) POINTED OUT THAT THE EXPENDITURE INCURRED BY THE ASSESSEE DURING THE SAID PERIOD IS ACTUAL EXPENDITURE AND I T HAS NOTHING TO DO WITH THE EXPENDITURE INCURRED EARLIER WHICH HAS BEEN INCURRED IN THE YEARS. IF THE ACTUAL EXPENDITURE IS DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH IS DIFFERENT THAN THE INTEREST CAPITALIZED TO THE COST THEN HOW IT CAN BE SAID THAT T HERE IS A DOUBLE DEDUCTION. W E CONCUR WITH THE FINDING OF THE LD. CIT(A) AND DISMISS THE GROUND TAKEN BY THE REVENUE. MOREOVER , THE REVENUE CANNOT TAKE THE CONSOLIDATED GROUND IN RESPECT OF ALL THE ASSESSMENT YEAR S IN ONE YEAR ONLY. IN THE RESULT, GROUN D NO. 1 IS DISMISSED. 4 ITA NO. 693/PN/2010, SHRI BABURAO VISHWANATH BAGADE, NASHIK 5. GROUND NO. 2 WHICH IS READS AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS MISTAKEN IN ALLOWING THE EXPENDITURE AGAINST LOAN OF RS.17.50 LACS, FOR PURCHASE OF TDR FOR A.Y. 2006 - 07, WHEN THE TDR WE RE PURCHASED DURING THE PREVIOUS YEAR RELEVANT TO THE A.Y. 2007 - 08. 6. THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF TDR COST RS.17,50,000/ - IT IS CLAIMED BY THE ASSESSING OFFICER THAT THE SAID EXPENDITURE IS ACTUALLY INCURRED BY THE ASSESSEE IN THE F .Y. 2007 - 08 AND HENCE , THE SAID EXPENDITURE IS ADMISSIBLE IN THE YEAR IN WHICH IT IS INCURRED. THE ASSESSING OFFICER ALSO TOOK THE SUPPORT OF SEC. 28 . IT APPEARS THAT THE LD. CIT(A) CALLED FOR THE REMAND REPORT IN WHICH THE ASSESSING OFFICER CLAIMED THAT THE EXPENDITURE IS ONLY INCURRED IN THE A.Y. 2007 - 08 AND HENCE, ALLOWABLE IN THE SAID YEAR. IT APPEARS THAT THE ASSESSEE HAS PURCHASED THE TDR BY MAKING THE PAYMENT OF RS.17,50,000/ - IN THE F.Y. 2006 - 07 RELEVANT TO THE A.Y. 2007 - 08. THE LD. CIT(A) DELET ED THE SAID ADDITION BY OBSERVING THAT AS PER AGREEMENT THE TRANSFERRED TOOK PLACE IN THE A.Y. 2006 - 07. 7. WE HAVE HEARD THE PARTIES. WE FIND THAT THE ISSUE HAS COME FOR CONSIDERATION IN THE CASE OF OTHER CO - OWNER BEFORE THE TRIBUNAL NAMELY SHRI DHARME NDRA D. VARU FOR THE A.Y. 2006 - 07 IN ITA NO. 335/PN/2010 AND THE TRIBUNAL DISMISSED THE GROUND TAKEN BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) . I N THAT CASE T HE RELEVANT DISCUSSION AND FINDING THE TRIBUNAL IN THE CASE OF CO - OWNER AND OTHERS SHRI DHARMENDRA D. VARU IS REPRODUCED AS UNDER: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. IN PARA 8.2 OF THE ORDER OF THE CIT(A), IT IS OBSERVED THAT THE ASSESSING OFFICER IN THE REMAND REPORT DID NOT DISPUTE THE POSITION THAT THE COST OF TDR WAS TO B E INCURRED BY THE ASSESSEE AGAINST THE CONSIDERATION STATED IN THE DEVELOPMENT AGREEMENT DATED 2 - 4 - 2005. THE PROFIT FROM THE TRANSACTION RESULTING IN THE DEVELOPMENT AGREEMENT DATED 2 - 4 - 2005 IS THE SUBJECT MATTER OF CONSIDERATION IN THE ASSESSMENT YEAR UND ER CONSIDERATION. IN PRINCIPLE, THE ASSESSING OFFICER HAS NOT DISPUTED THAT THERE WAS AN OBLIGATION ON THE PART OF THE ASSESSEE TO INCUR COST ON ACQUISITION OF TDR AS PER THE DEVELOPMENT AGREEMENT. THE ONLY OBJECTION RAISED BY THE ASSESSING OFFICER BEING T HAT THE SAID EXPENDITURE HAS BEEN ACTUALLY PAID IN THE SUBSEQUENT YEAR AND HENCE THE AMOUNT OF RS. 17,50,0007 - WAS NOT TO BE ALLOWED AS AN EXPENDITURE DURING THE 5 ITA NO. 693/PN/2010, SHRI BABURAO VISHWANATH BAGADE, NASHIK YEAR UNDER CONSIDERATION. IN OUR CONSIDERED OPINION, PRO FITS FROM TRANSACTION OF DEVELOPMENT A GREEMENT DATED 2 - 4 - 2005 ARE TO BE DEDUCED WHICH WOULD NECESSARY INVOLVE TAKING INTO CONSIDERATION ALL SUCH EXPENSES WHICH ARE ACTUALLY PAID AS WELL AS THE EXPENSES WHICH ARE TO BE INCURRED AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT. THE EXPENDITURE I N QUESTION IS CLEARLY FASTENED TO THE SALE CONSIDERATION FLOWING FROM THE ASSESSEE IN TERMS OF THE DEVELOPMENT AGREEMENT DATED 2 - 4 - 2005 AND AS PER THE MERCANTILE SYSTEM OF DEDUCING PROFITS THE SAID EXPENDITURE IS AN ALLOWABLE EXPENSE. IN FACT, THE POSITION OF THE ASSESSEE IS FULLY JUSTIFIED IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF CALCUTTA CO. LTD. VS. CIT WEST BENGAL (1959) 37 ITR 1 (SC) WHEREIN IT HAS BEEN HELD THAT IN A MERCANTILE SYSTEM OF ACCOUNTING EVEN AN ESTIMATION OF ACCRUED EXPENDITURE WHOSE LIABILITY IS TO BE DISCHARGED AT A FUTURE DATE IS AN ALLOWABLE EXPENDITURE.. IN THIS VIEW OF THE MATTER, IN OUR OPINION , THE CIT(A) MADE NO MISTAKE IN DIRECTING ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS.17,50,000/ - ON ACCOUNT OF TDR COST. THE REVENUE FAILS ON THIS ISSUE. 8 . AS THE ISSUE IS IDENTICAL IN THE CASE OF PRESENT ASSESSEE FOLLOWING THE TRIBUNAL IN THE CASE OF ANOTHER CO - OWNER SHRI DHARMENDRA D. VARU WE DISMISS THE GROUND NO. 2 TAKEN BY THE REVENUE. 9 . IN THE RESULT, TH E REVENUE S APPEALS IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 21 - 06 - 20 1 3 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 21 ST J UNE, 20 1 3 COPY TO 1 D EPARTMENT 2 ASSESSEE 3 THE CIT(A) - I, NASHIK 4 THE CIT - I, NASHIK 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE