ITO 12(3)(3), MUMBAI V. GOODWILL BUILDERS, MUMBAI

ITA 6967/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8903 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 28-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 14-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S S PHADKARAR
• Keywords: Deemed to accrue or arise in india

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL GBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & PAWAN SINGH, JUDICIAL MEMBER ./I.T.A./6967/MUM/2014 , /ASSESSMENT YEAR: 2011-12 INCOME TAX OFFICER-12(3)(3) ROOM NO.123, 1ST FLOOR, AAYAKAR BHAVAN, MUMBAI-400 020. VS. M/S. GOODWILL BUILDERS 12-A, YUSUF BLDG. V.N. ROAD, MUMBAI-23. PAN:AAAFG 1164 B ( /APPELLANT ) ( / RESPONDENT ) CO NO.73/MUM/2016 ( ARISING OUT OF ./I.T.A./6967/MUM/2014) M/S. GOODWILL BUILDERS MUMBAI-400 023. VS. INCOME TAX OFFICER-12(3)(3) MUMBAI-20. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI ARVIND KUMAR -DR ASSESSEE BY: SHRI S.S. PHADKAR-AR / DATE OF HEARING: 10.06.2016 / DATE OF PRONOUNCEMENT:04.01.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 25.8.14 OF CIT(A)-23 MU MBAI, THE AO. HAS FILED THE PRESENT APPEAL AND THE ASSESSEE HAS FILED CROSS OBJECTION F OR THE AY.200. ASSESSEE - FIRM IS A DEVELOPER AND CONTRACTOR.IT FILED ITS RETURN OF INC OME ON 26.9.2011, DECLARING TOTAL INCOME AT RS.4,480/-, THE AO COMPLETED ASSESSMENT U/S. 143 ON 23.1.2014 DETERMINING ITS INCOME AT RS.2.65 CRORES. 2. FIRST EFFECTIVE GROUND OF APPEAL (GOA1-4) DEALS WIT H DELETION OF THE ADDITION OF RS. 2.65 CRORES ON ACCOUNT OF DEEMED INCOME. DURING THE ASSE SSMENT PROCEEDINGS THE AO OBSERVED THAT THE ASSESSEE HAD COMPLETED THE CONSTRUCTION WO RK OF POLICE QUARTERS ON THE 40% OF THE DE-RESERVED PLOT OF LAND AND HAD RECEIVED 60% OF LA ND FREE OF COST IN LIEU OF THE EXPENDITURE INCURRED ON CONSTRUCTION OF 40% OF PLOT, THAT IT HA D NOT OFFERED ANY INCOME FROM THE PROJECT, THAT IT HAD PURCHASED A PLOT OF LAND ADMEASURING 37 ,430 SQ.MTS., THAT OUT OF THE SAID AN AREA OF 5398.90 SQ.MTS. WAS RESERVE LAND, THAT NO CONSTRUCT ION ACTIVITY COULD BE CARRIED OUT ON THE SAID PORTION OF THE PLOT, THAT IT COMPLETED THE CON STRUCTION WORK IN THE REMAINING AREA OF THE PLOT OF LAND AND SOLD THE SAME, THAT IT OFFERED THE PROFIT FOR TAXATION IN THE RESPECTIVE YEARS OF COMPLETION OF THE PROJECT,THAT IT HAD CAPITALISED T HE COST OF RESERVE LAND OF 5398.90 SQ.MTS. IN THE COMPLETED PROJECT, THAT AFTER COMPLETION OF PRO JECT IT APPROACHED THE GOVERNMENT OF 6967 &73(C.O.)/M/GOODWILL 2 MAHARASHTRA FOR DE-RESERVATION OF THE PLOT OF 5398. 90 SQ.MTS.,THAT VIDE ITS NOTIFICATION DATED 03/12/2003 THE GOVERNMENT DE-RESERVED THE SAID PLOT SUBJECT TO THE CONDITION THAT 40% OF THE PLOT OF LAND SHOULD BE UTILISED FOR CONSTRUCTION OF POLICE QUARTERS, POLICE STATION ETC., FREE OF COST TO THE GOVERNMENT, THAT THE ASSESSEE ENTERED I NTO AN AGREEMENT, DATED 30/06/2008, WITH THE POLICE DEPARTMENT FOR DEVELOPMENT OF THE PLOT O F 5398.90 SQ.MTS.,THAT AS PER THE SAID AGREEMENT THE ASSESSEE WAS REQUIRED TO CONSTRUCTED POLICE-QUARTERS AND POLICE STATION ON 2159.56 SQ.MTS.,THAT AS PER THE AGREEMENT IT AGREED TO PROVIDE THE POLICE DEPARTMENT ON OWNERSHIP BASIS FREE OF CHARGE THE POLICE STATION A ND POLICE QUARTERS WITH REQUIRED AMENITIES AND FITTINGS ON THE PLOT AREA OF 159.56 SQ.MTS.. CO NSIDERING THESE FACTS,THE AO HELD THAT AS PER THE TERMS OF AGREEMENT ON COMPLETION OF THE PRO JECT AND HANDING OVER POSSESSION OF THE BUILDING/FLAT THE ASSESSEE WAS ENTITLED TO RECEIVE THE BALANCE 3239.34 SQ.MTS. PLOT OF LAND, THAT IT WAS ENTITLED TO PLOT OF 3239.34 SQ.MTS. IN LIEU OF THE EXPENDITURE INCURRED FOR CONSTRUCTION OF THE POLICE QUARTERS AND STATION, THAT IT HAD COM PLETED THE CONSTRUCTION IN THE MONTH OF SEPTEMBER, 2009 AND HAD OFFERED THE POSSESION OF TH E PROPERTY TO THE POLICE DEPARTMENT IN THE MONTH OF OCTOBER, 2009, THAT AT THAT POINT OF TIME ASSESSEE BECAME THE OWNER OF THE BALANCE PLOT OF 3239.34 SQ.MTS.(5398.90 SQ.MTS. -2159.56 SQ .MTS. ). HE DIRECTED THE ASSESSEE TO EXPLAIN AS TO WHY PROFI T SHOULD NOT BE WORKED OUT ON TRANSACTION COMPLETED IN RESPECT OF THE PLOT OF LAND. IT WAS AR GUED BY THE ASSESSEE THAT NO PROFIT HAD ARISEN TO IT,THAT THE ENTIRE EXPENDITURE INCURRED F OR CONSTRUCTION OF PS QUARTERS AND STATION OF RS. 4.59 CRORES WAS TAKEN AS PART OF WORK IN PROGRE SS OF 60% OF THE PLOT,THAT THE QUARTERS AND STATION WAS CONSTRUCTED ON NO-PROFIT NO-LOSS BASIS. HOWEVER, THE AO DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT THE ASSES SEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, THAT IT HAD PURCHASED A PLOT, THAT OUT OF THE SAID PLOT 5398.90 SQ.MTS. PLOT OF LAND WAS RESERVE, THAT NO DEVELOPMENT WAS PERMITTED ON T HAT PORTION OF LAND, THAT WHILE DEVELOPING THE PLOT IT HAD CAPITALISED THE ENTIRE COST OF THE PLOT OF LAND, THAT IT HAD RECOVERED THE COST OF RESERVE LAND FROM THE PROJECT COMPLETED ON THE OTHE R PORTION OF THE LAND, THAT THE COST OF 37,430 SQ.MTS. LAND WAS RECOVERED BY THE ASSESSEE A ND THE COST OF 5398.90 SQ.MTS OF LAND HAD BECOME NIL ON COMPLETION OF THE PROJECT ON THE OTHER PORTION OF THE LAND, THAT IT HAD OFFERED THE PROFIT FOR TAXATION FROM THE CONSTRUCTI ON BUSINESS IN THE RETURN OF INCOME PAST YEARS AND REDUCTION OF EXPENSES INCURRED FOR PURCHA SING THE PLOT OF 5398.90 SQ.MTS.,THAT IT HAD UTILISED TO 1590.56 SQ.MTS. OF LAND FOR CONSTRU CTION OF POLICE QUARTER AND POLICE STATION,THAT IT HAD ALREADY AVAILED THE ORIGINAL CO ST OF THE PLOT IS EXPENDITURE IN THE EARLIER PROJECTS, THAT THE EXPENDITURE INCURRED BY IT FOR C ONSTRUCTION OF THE QUARTERS AND STATION WAS FOR GAINING THE POSSESSION OF THE BALANCE PLOT, THA T THE COST OF PLOT OF LAND OF 3239.34 SQ.MTS. 6967 &73(C.O.)/M/GOODWILL 3 HAD TO BE TAKEN AS PROFIT OF THE ASSESSEE FROM THE SAID PROJECT, THAT THE ASSESSEE HAD NOT CARRIED OUT ANY CONSTRUCTION ACTIVITY IN THE BALANC E 60% OF THE PLOT, THAT IT HAD BECOME OWNER OF THE BALANCE PLOT ON COMPLETION OF CERTAIN CONTRA CTUAL LIABILITIES, THAT ASSESSEE GOT THE TITLE ONLY AFTER THE PLOT WAS DECLARED DE-RESERVED BY THE GOVERNMENT OF MAHARASHTRA,THAT THE ASSESSEE WAS NOT CORRECT IN STATING THAT IT HAD CON STRUCTED THE PROJECT ON NO PROFIT NO LOSS BASIS,THAT IT HAD INCURRED EXPENDITURE OF 4.59 CROR ES FOR CONSTRUCTION OF THE QUARTERS AND STATION,THAT THE COST OF THE PLOT OF 3239.34 SQ.MTS .WAS THE CONSIDERATION RECEIVED FOR COMPLETING THE QUARTERS AND STATION,THAT EXPENDITUR E INCURRED ON POLICE QUARTERS AND STATION WAS TO BE REDUCED FROM THE VALUE OF THE PLOT AS ON THAT DATE AND BALANCE WAS TO BE OFFERED AS INCOME FOR THE SAID TRANSACTION.HE WORKED OUT THE P ROFIT FROM THE TRANSACTION IN QUESTION ON THE BASIS OF STAMP DUTY VALUATION AS PER THE READY RECKONER. THE WORKING OF THE AO READ AS UNDER: AREA OF PLOT RECEIVED BY THE ASSESSEE ON COMPLETION OF THE POLICE QUARTERS/STATION 3239.34 SQ.MTRS. RATE OF PLOT OF LAND AS PER STAMP DUTY READY RECKONE R LAND STIPULATED AT 96/E, WADHVAN, KANDIVALI, MUMBAI . 22,400 PER SQ.METER COST OF PLOT 22,400 X 3239.34 RS.7,25,61,216/- COST INCURRED FOR CONSTRUCTION OF POLICE QUARTERS AN D POLICE STATION AS PER ASSESSEES STATEMENT. RS.4,59,95,471/- PROFIT FROM THE PROJECT/TRANSACTION RS.2,65,65,745/- 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).AFTER CONSIDERING THE ELA BORATE SUBMISSIONS MADE BY THE ASSESSEE AND THE ASSESSMENT ORDER, HE HELD THAT AS PER THE A RTICLES OF AGREEMENT DATED 06/09/1979 THE ASSESSEE HAD PURCHASED A PLOT OF LAND INCLUDING THE RESERVED PLOT OF 5398 SQ.MTS., THAT AS PER THE CLAUSE FIVE OF THE AGREEMENT ON CERTAIN CONDITI ONS ASSESSEE WAS ENTITLED TO GET FURTHER FSI, THAT LAND WAS EARMARKED FOR A RESERVE PURPOSES, THA T DE-RESERVATION MEANT THAT OWNER OF THE LAND COULD NOT CARRY OUT ANY DEVELOPMENT ACTIVITY O N THAT PORTION OF LAND,THAT THE LAND WAS TO BE RELEASED ONLY FOR THE PURPOSE FOR WHICH IT WAS E ARMARKED,THAT IF THE GOVERNMENT WOULD ACQUIRE THE PLOT OF LAND THE OWNER OF THE SAID PLO T WOULD CEASE TO BE THE OWNER THEREOF, THAT IN THE CASE UNDER CONSIDERATION THE PLOT OF LAND WA S NOT ACQUIRED BY THE GOVERNMENT,THAT THE ASSESSEE CONTINUED TO BE THE OWNER OF THE RESERVE L AND, THAT IT WAS NOT ENTITLED TO DEVELOP THE SAID PLOT OF LAND. HE REFERRED TO THE CLAUSE (D) OF THE AGREEMENT, DATED 30/06/2008, ENTERED INTO BETWEEN THE POLICE DEPARTMENT AND THE ASSESSEE AND HELD THAT THE ASSESSEE HAD TO CONSTRUCT QUARTERS AND STATION AND HAD TO HAND OVER 40% OF THE PROPERTY TO THE GOVERNMENT, THAT THE CLAUSE CLEARLY PROVED THAT IT WAS THE OWNE R OF THE LAND. HE FURTHER REFERRED TO THE CLAUSES ONE AND NINE OF THE AGREEMENT AND HELD THAT LEASE OF 99 YEARS OF LAND IN QUESTION,ON WHICH THE BUILDING OF POLICE DEPARTMENT WAS TO BE C ONSTRUCTED,HAD TO BE EXECUTED BY THE 6967 &73(C.O.)/M/GOODWILL 4 ASSESSEE IN FAVOUR OF THE POLICE COMMISSIONER, MUMB AI AT THE YEARLY RENT OF RS. 1/-,THAT GOVERNMENT WAS NOT THE OWNER OF THE LAND, THAT HAD IT BEEN SO THERE WAS NO REQUIREMENT OF EXECUTING A LEASE DEED BY THE ASSESSEE IN FAVOUR OF THE POLICE DEPARTMENT,THAT ASSESSEE WAS RESTRAINED FROM CARRYING OUT WORK ON ITS OWN BUILDI NG MARKED FOR RESERVATION,THAT THE ASSESSEE AS THE OWNER OF THE PLOT CONSTRUCED BUILDI NG FREE OF COST FOR THE POLICE DEPARTMENT, THAT IT EARNED THE BENEFIT OF DEVELOPING THE REMAIN ING 60% OF THE PROPERTY OWNED BY IT,THAT AFTER PARTING WITH 40% OF THE RESERVE LAND AND CONS TRICTING THE BUILDING FREE OF COST FOR THE POLICE DEPARTMENT THE ASSESSEE GAINED THE BENEFIT O F THE DEVELOPING THE 60% OF THE LAND, THAT BY ITS ACT THE ASSESSEE ONLY IMPROVED UPON THE RIGH T OF THE LAND OWNED BY IT, THAT NO INCOME HAD ACCRUED TO IT AT THAT STAGE,THAT SAME WOULD ACC RUE TO IT ONLY AFTER IT HAD DEVELOPED THE PROPERTY/SOLD THE PROPERTY,THAT IT HAD PARTED WITH 40% OF THE LAND AND EXPENSES WERE INCURRED FOR IMPROVING UPON ITS RIGHTS TO DEVELOP THE BALANC E 60% OF THE PLOT OF LAND TO EARN INCOME,THAT IT WAS NOT A CASE WHERE THE LAND WAS AC QUIRED BY THE GOVERNMENT IN LIEU OF THE ASSESSEE PROVIDING FREE OF COST CONSENT TO THE POLI CE DEPARTMENT,THAT THE GOVERNMENT HAD COMPENSATED THE ASSESSEE BY GIVING 60% OF THE LAND FREE OF COST, THAT WHAT HAD HAPPENED IN REALITY WAS THAT AS PER THE GOVERNMENT OF MAHARASHT RA RESOLUTION THE BALANCE 60% OF THE PLOT OF LAND WHICH WAS EARLIER EARMARKED FOR RESERVATION WAS DE-RESERVED FOR DEVELOPMENT,THAT IT WAS FACTUALLY AND LEGALLY INCORRECT TO HOLD THAT TH E ASSESSEE RECEIVED BALANCE 60% OF THE SAID PLOT OF LAND IN QUESTION AS A CONSIDERATION FOR CON STRUCTING THE QUARTER/STATION FREE OF COST, THAT BY INCURRING THE EXPENDITURE ON CONSTRUCTION OF POL ICE QUARTERS/BUILDING IT MERELY OBTAINED THE RIGHTS TO DEVELOP THE BALANCE 60% OF THE RESERV E LAND OWNED BY IT, THAT THE COST INCURRED BY IT ON CONSTRUCTION OF 40% OF THE LAND OF POLICE BUILDING WOULD BE THE COST TOWARDS OBTAINING THE BENEFIT OF DEVELOPING THE 60% OF THE SAID LAND FOR EARNING INCOME, THAT LAND WAS ALWAYS OWNED BY IT (THOUGH EARMARKED FOR RESERV ATION), THAT THE GOVERNMENT HAD NOT ACQUIRED THE PLOT OF LAND, THAT THE GOVERNMENT HAD RELEASED THE BENEFIT OF DEVELOPMENT TO THE ASSESSEE BY RESERVING THE 60% OF THE LAND, THAT IT COULD NOT BE HELD THAT GOVERNMNET GAVE THE PLOT OF LAND TO THE ASSESSEE IN LIEU OF THE CONSTRU CTION OF THE POLICE-BUILDING FREE OF COST, THAT THE AO HAD HIMSELF HELD THAT ASSESSEE BECAME THE OW NER OF THE 60% OF THE PLOT OF LAND IN NOVEMBER 2009, IF THAT WAS TO BE CORRECT THAN THE I NCOME WOULD ACCRUED TO THE ASSESSEE IN THE ASSESSMENT YEAR 2010-11. FINALLY, HE DELETED TH E ADDITION MADE BY THE AO. 2.2. IN THE COURSE OF HEARING BEFORE US, THE DEPARTMENTA L REPRESENTATIVE (DR) CONTENDED THAT THE ASSESSEE WAS NOT THE OWNER OF THE PLOT OF THE L AND ,THAT IT GOT POSSESSION OF THE PLOT AFTER IT CONSTRUCTED THE POLICE STAFF QUARTERS AND STATION,T HAT THE AO HAD RIGHTLY DETERMINED THE VALUE 6967 &73(C.O.)/M/GOODWILL 5 OF THE PLOT OF LAND.THE AUTHORISED REPRESENTATIVE ( AR) SUPPORTED THE ORDER OF THE FAA AND ARGUED THAT THE PLOT WAS PURCHASED LONG BACK ALONG WITH THE RESERVED PORTION OF THE PLOT,THAT THERE WAS NO JUSTIFICATION OF MAKING ANY ADDITION. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD PURCHASED A PLOT OF LAND MEASURING 37, 430 SQ.MTS. WHICH INCLUDED A PORTION THAT WAS RESERVED FOR A PARTICULAR PURPOSE,THAT LEAVING APART THE SAID PORTION THE ASSESSEE COMPLETED THE CONSTRUCTION WORK AND OFFERED THE INC OME ARISING OUT OF THE SAID CONSTRUCTION ACTIVITIES IN EARLIER ASSESSMENT YEARS,THAT IT WAS PREVENTED FROM DEVELOPING THE PLOT OF LAND MEASURING 5398.9 SQ.MTS.,THAT IN THE YEAR 2003 THE GOVERNMENT OF MAHARASHTRA DE-RESERVED THE SAID PORTION OF LAND I.E. 5398.90 SQ.MTS., THAT ASSESSEE WAS TO BUILD POLICE QUARTERS AND POLICE STATION ON THE 40% OF THE SAID PLOT OF LAND WITHOUT CHARGING ANY MONEY FROM THE POLICE DEPARTMENT,THAT IT WAS ALLOWED TO UTILIZE TH E REMAINING 60% OF PLOT OF LAND FOR COMMERCIAL PURPOSES,THAT THE ASSESSEE COMPLETED THE CONSTRUCTION OF QUARTERS/ STATION BY THE END OF SEPTEMBER, 2009,THAT THE BUILDINGS WERE HAND ED OVER TO THE POLICE DEPARTMENT FOR FREE,THAT IT HAD INCURRED AN EXPENDITURE OF RS.4.59 CRORES FOR CONSTRUCTING THE QUARTERS AND STATIONS,THAT THE AO HELD THAT ASSESSEE HAD BECOME THE OWNER OF THE PLOT OF LAND AFTER HANDING OVER THE POSSESSION OF THE QUARTERS AND STATION TO THE POLICE DEPARTMENT, THAT HE MADE AN ADDITION OF RS.2.65 CRORES TO THE INCOME OF THE ASS ESSEE,THAT THE FAA REVERSED THE ORDER OF THE AO.IN OUR OPINION, THE ORDER OF THE FAA DOES N OT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY,THAT HE HAD GIVEN A FINDING OF FACT THAT ASSESSEE WAS THE OWNER OF THE PLOT OF LAND FROM THE VERY BEGINNING, THAT IT HAD EXECUTED A LEA SE FOR 99 YEARS AT THE RENT OF RS. 1 PER YEAR IN FAVOUR OF THE POLICE DEPARTMENT,THAT IF THE ASSE SSEE WAS NOT THE OWNER OF THE PLOT OF LAND THERE WAS NO NEED FOR THE GOVERNMENT TO ENTER IN TO A LEASE.RESERVING OR DE-RESERVING OF THE PLOT OF LAND CANNOT DECIDE THE ISSUE OF OWNERSHIP O F THE PLOT OF LAND.BY CONSTRUCTING THE PLOT OF LAND THE ASSESSEE HAD IMPROVED UPON THE RIGHT IN LAND. IF ANY TAXABLE INCOME WAS TO ACCRUE OR ARISE IT WOULD NOT BE AT THIS STAGE BUT AT THE S TAGE OF SALE OF THE CONSTRUCTED PORTION ON THE BALANCE PLOT I.E.60% OF THE PLOT. THE AO WAS NOT JU STIFIED IN APPLYING READY RECKONER RATE ON THE STAMP DUTY VALUATION AND THAT ALSO FOR THE YEAR UNDER CONSIDERATION.AS THE ORDER OF THE FAA NEEDS NO INTERFERENCE FROM OUR SIDE,SO,CONFIRMI NG THE SAME WE DECIDE THE FIRST GROUND OF APPEAL AGAINST HIM. 3. NEXT GROUND OF APPEAL(GOA-5)DEALS WITH DELETION OF ADDITION OF RS.9.50 LAKHS.DURING THE ASSESSMENT PROCEEDINGS,THE AO FOUND THAT THE ASSESS EE HAD INCURRED EXPENDITURE OF RS. 9.50 6967 &73(C.O.)/M/GOODWILL 6 LAKHS TOWARD BUILDING NUMBER TWO OF THE POLICE STAT ION BUILDING UNDER VARIOUS HEADS. HOWEVER, ON SPOT VISIT BY THE BOARD INSPECTOR IT WA S REPORTED THAT NO CONSTRUCTION ACTIVITIES WERE CARRIED OUT ON THE PLOT AND IT WAS LYING VACAN T. THE AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE AND ASKED TO EXPLAIN AS TO WHY THE EXP ENDITURE OF RS.9, 50, 543/- SHOULD NOT BE DISALLOWED AND THE WORK IN PROGRESS SHOULD NOT BE R EDUCED BY THE SAME AMOUNT.VIDE ITS LETTER DATED 07/01/2014 THE ASSESSEE FILED ITS REPLY IN TH AT REGARD. AFTER CONSIDERING THE SAME, HE OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION T HE PROFIT AND LOSS ACCOUNT SHOWED NIL TRANSACTION, THAT NEITHER ANY EXPENDITURE AND BEEN INCURRED NOR ANY RECEIPT WAS SHOWN BY THE ASSESSEE, THAT IT HAD CLAIMED EXPENDITURE OF RS.9.5 0 LAKHS UNDER VARIOUS HEADS WITHOUT ACTUALLY INCURRING THE EXPENDITURE, THAT THE EXPENS ES CLAIMED UNDER THE VARIOUS HEADS WERE NOT INCURRED FOR CONSTRUCTION OF THE PROJECT, THAT THE EXPENSES WERE NOT RELATED TO THE WORKING PROJECTS OF THE PROJECT.FINALLY, HE DISALLOWED THE AMOUNT IN QUESTION AND REDUCED THE WORK IN PROGRESS BY RS. 9.50 LAKHS. 3.1. DURING THE PROCEEDINGS BEFORE THE FAA,THE ASSESSEE MADE CERTAIN SUBMISSIONS. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AND THE ASSESSMENT ORDER, HE HELD THAT THE AO HAD NOT BROUGHT ANY MATERIAL ON RECORD THAT BUSINESS OF THE ASSESSEE HAD CEASED TO EXIST DURING THE YEAR OR THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE NOT GENUINE,THAT THERE COULD BE LULL AND BUSINESS ACTIVITIES AND THE CONSTRUCTION ACTIVI TY MAY NOT HAVE BEEN CARRIED OUT DURING THE YEAR TO ITS POTENTIAL, THAT CERTAIN EXPENSES LIKE S TAFF SALARY,ELECTRICITY EXPENSES WERE REQUIRED TO BE INCURRED,THAT THE PROJECT RELATING TO THE CON STRUCTION OF BUILDINGS ON THE DE-RESERVED PLOT OF LAND WAS CONTAINING, THAT AO HAD NOT BROUGHT ON RECORD TO SUGGEST THAT EXPENSES OF ANY OTHER PROJECT/BUSINESS HAD BEEN DEBITED IN THE WORK IN PROGRESS, THE EXPENDITURE OTHER THAN THE EXPENDITURE ON ACCOUNT OF INCOME TAX AND TDS HA D TO BE ALLOWED TO BE PART OF THE WIP.HE HELD THAT EXPENDITURE OF RS.7,413/- ON ACCOU NT OF INCOME TAX AND EXPENDITURE OF RS.2,767/- AND RS.1,300/-ON ACCOUNT OF TAX DEDUCTED AT SOURCE HAD TO BE DISALLOWED OUT OF THE TOTAL EXPENDITURE OF RS. 9.50 LAKHS. 3.2. BEFORE US,THE DR SUPPORTED THE ORDER OF THE AO AND THE AR RELIED UPON THE ORDER OF THE FAA.WE FIND THAT THE AO HAD NOT DOUBTED THE GENUINE NESS OF THE EXPENDITURE.HIS ONLY OBJECTION WAS THAT AT THE TIME OF SPOT VISIT BY THE INSPECTOR IT WAS FOUND THAT THE ASSESSEE WAS NOT CARRYING OUT ANY CONSTRUCTION ACTIVITIES.IN OUR OPINION,IN THE CASE OF A CONTRACTOR OR A DEVELOPER TIME GAP IN STARTING A NEW PROJECT AFTER COMPLETING THE FIRST PROJECT IS NOT AN ABNORMAL PRACTICE.BUT HE HAS TO MAINTAIN THE OFFICE AND THE STAFF FOR STARTING THE SECOND 6967 &73(C.O.)/M/GOODWILL 7 PROJECT.EXPENDITURE INCURRED FOR THE INTERVENING PE RIOD CANNOT BE DISALLOWED.IN THE CASE UNDER CONSIDERATION THE ASSESSEE HAD STARTED THE CO NSTRUCTION OF POLICE STATION AND QUARTERS AFTER THE PLOT OF LAND WAS DE-RESERVED. THE FAA HAD SCRUTINIZED ALL THE EXPENSES INCURRED BY THE ASSESSEE AND HAD HELD THAT CERTAIN EXPENSES WER E NOT ALLOWABLE.EXPENSES INCURRED UNDER THE HEADS SALARY OF STAFF OR ELECTRICITY BILLS CANN OT BE DISALLOWED,ESPECIALLY WHEN INCURRING OF EXPENSES IS NOT IN DOUBT.THEREFORE,IN OUR OPINION,T HE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.UPHOLDING HIS ORDER, WE DECIDE THE EFFECTIVE GROUND OF APPEAL NO.2 AGAINST THE AO. CO NO.73/MUM/2016 IN THE FIRST OBJECTION THE ASSESSEE HAS SUPPORTED T HE ORDER OF THE FAA ON BOTH THE COUNTS I.E., DELETION OF ADDITIONN OF RS.2.65 CRORES AND INCURRI NG OF EXPENDITURE OF RS.9.50 LAKHS (- RS.476). WHILE DECIDING THE APPEAL FILED BY THE AO, WE HAVE DECIDED BOTH THE ISSUES AGAINST HIM, THEREFORE, CO BECOMES INFRUCTUOUS. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D AND THE CO FILED BY THE ASSESSEE IS TREATED INFRUCTUOUS. ORDER PRONOUNCED IN THE OPEN COURT ON 04 TH JANUARY, 2017. 04 , 2017 SD/- SD/- ( ( ( ( /PAWAN SINGH) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 04.01.2017 JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.