SHAILESH DHAIRYAWAN, MUMBAI V. ITO 19(1)(2), MUMBAI

ITA 7615/MUM/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0955 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2015
• Appeal Filed By: Assessee
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 22-12-2014
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: DARSHAN SHAH; MAHENDRA B SANGHAVI
• Keywords: Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ./ ITA NO . 7615 / MUM/20 1 4 ( / ASSESSMENT YEAR : 2010 - 2011 ) SHAILESH DHAIRYAWAN, G - 01 , DHAIRYA RESIDENCY, 12 TH ROAD, OPP. GAYATRI MANDIR, KHAR WEST - 400052 VS. ITO 19 ( 1 )( 2 ), MUMBAI ./ ./ PAN/GIR NO. : A A APD 5713 D ( / AP PELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI MAHENDRA B.SANGHAVI & . SHRI DARSHAN SHAH /REVENUE BY : SHRI NEIL PHILIP / DATE OF HEARING : 19 /03/2015 / DATE OF PRONOUNCEMENT 08/04 /2015 / O R D E R PER R.C.SHARMA (A.M) : TH IS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 3 - 11 - 2014, FOR THE A.Y. 2010 - 2011 , IN THE MATTER OF ORDER PASSED U/S.143(3) THE I.T.ACT. 2. RIVAL CONTENT IONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND BUILDING . DURING THE COURSE OF SCRUTINY ASSESSMENT, THE AO DISALLOWED THE CLAIM OF RS. 28 LAKHS MADE TOWARDS PROVISION FOR EXPENSES UNDER CONSTRUCTION CONTRACTS. WE FOUND THAT THE PROVISION OF EXPENSES RELATES TO JAI MILIND CONSTRUCTION PROJECT, WHICH WAS ALMOST COMPLETED DURING THE ITA NO. 7615 / 1 4 2 YEAR UNDER CONSIDERATION. THE ASSESSEE HAS SOLD ALL THE FLATS PERTAINING TO THAT PROJECT AND ALSO RECOGN IZED ENTIRE SALE CONSIDERATION IN THE PROFIT AND LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION . SINCE ALL THE INCOME PERTAINING TO THIS PROJECT HAVE ALREADY BEEN ACCOUNTED FOR IN THE YEAR UNDER CONSIDERATION, THE VARIOUS EXPENSES WHICH PERTAIN TO THIS PROJE CT IS REQUIRED TO BE TAKEN INTO ACCOUNT WHICH MAY BE REQUIRED FOR COMP L ETING THE OBLIGATION PERTAINING TO THIS PROJECT SUCH AS INTERIOR OF FLAT, BATHROOM FITTING, BMS CHARGES FOR FILING COMPUTATION ETC. ACCORDINGLY, THE ASSESSEE HAS PROVIDED FOR TH ESE EXPE NSES A GAINST INCOME OF THIS PROJECT WHICH WAS ACCOUNTED DURING THE YEAR UNDER CONSIDERATION. INSOFAR AS ENTIRE INCOME OF THIS PROJECT WAS ALREADY TAKEN INTO ACCOUNT DURING TH E YEAR UNDER CONSIDERATION ONLY, T HE EXPENSES PERTAINING TO THIS PROJECT IS ELIGIB LE FOR DEDUCTION. WE ALSO FOUND FROM THE RECORD THAT IN THE SUBSEQUENT ASSESSMENT YEAR 2011 - 2012, THE ASSESSEE HAS INCURRED THOSE VARIOUS EXPENSES TOTALING TO RS. 29,24,735/ - , FULL BREAK UP OF THE SAME WAS ALSO FURNISHED BEFORE THE AO TO SUBSTANTIATE THE CL AIM OF PROVISION FOR EXPENSES MADE DURING THE YEAR. ACCORDINGLY, WE DO NOT FIND ANY MERIT IN THE ACTION OF THE LOWER AUTHORITIES DISALLOWING EXPENSES PERTAIN ING TO THIS PROJECT, INCOME OF WHICH HAS ALREADY BEEN OFFERED FOR TAXATION DURING THIS YEAR. WE, TH EREFORE, DIRECT THE AO TO DELETE THE DISALLOWANCE OF EXPENSES SO MADE. 3. THE NEXT GRIEVANCE RELATES TO DISALLOWANCE OF EXPENSES AMOUNTING TO RS. 16,19,293/ - IN RESPECT OF PURCHASE OF CONSTRUCTION MATERIAL FROM BHAVISHA STEEL ART. WE FOUND THAT THIS RA ILIN G MATERIAL WAS PURCHASED FOR ITA NO. 7615 / 1 4 3 THE VERY SAME JAI MILIND PROJECT. THE AO DISALLOWED IT ON THE PLEA THAT SUMMON ISSUED TO THE SUPPLIER RETURNED BACK, THEREFORE, EXPENSES REMAINED UNVERIFIABLE. FROM THE RECORD WE FOUND THAT BEFORE THE LOWER AUTHORITIES THE ASSE SSEE SUBMITTED VARIOUS EVIDENCES PERTAINING TO THESE PURCHASES I.E. INVOICE FROM THE BHAVISHA STEEL ART, LEDGER ACCOUNT STATEMENT AND CONFIRMATION FROM BHAVISHA STEEL ART ETC. FROM THESE EVIDENCES, IT IS CLEAR THAT EXPENSES HAVE BEEN ACTUALLY INCURRED BY T HE ASSESSEE TOWARDS CONSTRUCTION OF JAI MILIND PROJECT. IT IS PERTINENT TO MENTION THAT SUMMON ISSUED BY AO RETURNED UNSERVED BECAUSE THE CONCERNED PERSON WAS OUT OF STATION. HOWEVER, AFTER THE SUMMON ISSUED BY THE AO W AS RETURNED UNSERVED , T HE AO DID NOT PROVIDE ANY OPPORTUNITY TO ASSESSEE TO PRODUCE THE PARTY OR TO GIVE CHANGE D ADDRESS, IF ANY. THUS, FACT OF SUMMON RETURNED UNSERVED WAS NOT BROUGHT TO THE NOTICE OF ASSESSEE. HOWEVER, DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE HAD REQUESTED THE CIT(A) TO GRANT THE ASSESSEE AN OPPORTUNITY TO PRODUCE THE PART Y , HOWEVER, NO SUCH OPPORTUNITY WAS PROVIDED TO THE ASSESSEE . WE HAD VERIFIED THE RELEVANT EVIDENCE S PLACED ON RECORD LIKE PURCHASES INVOICES, LEDGER ACCOUNT, BALANCE CONFIRMATION, COPY OF THE PAN CAR D, WHICH PROVES THAT ASSESSEE HAS ACTUALLY MADE PURCHASE OF RS. 16.90 LAKHS TOWARDS MATERIAL REQUIRED FOR JAI MILIND PROJECT ON ACCOUNT OF R AILING EXPENSES, INCURRED AND PAID TO BHAVISHA STEEL ART. EXPENSES HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF JAI MILIND PROJECT CORRESPONDING INCOME OF WHICH HAD ALREADY BEEN OFFERED FOR TAX DURING ITA NO. 7615 / 1 4 4 THE YEAR. WE, THEREFORE, DIRECT THE AO TO DELETE THE DISALLOWANCE OF EXPENSES. 4. THE AO HAS ALSO MADE DISALLOWANCE OF BAD DEBTS OF RS. 15,76,000/ - DEBITED THE PROFIT AND LOSS ACCOUNT AS UNDER : - MR. V.D.KHATARA RS.16,60,000/ - (15,76,000+84,000) MR. ARUN MOHE RS.18,60,000/ - SUNDRY PARTIES RS.304,288/ - TOTAL RS. RS.38,24,288/ - 5. FROM THE RECORD WE FOUND THAT M R. V.D.KHATARA WAS AN EXISTING TENANT IN RAJHA NS PROJECT, AN ADDITIONAL AREA WAS SOLD FOR RS.18,60,000/ - ALONG WITH FLAT IN EXCHANGE OF OLD TENANTED PROPERTY AS PER AGREEMENT DATED 29/12/2006. THE SAID AMOUNT WAS REALIZED/ADJUSTED AS UNDER : - SALE CONSIDERATION RS.18,60,000/ - AMOUNT RECEIVED IN F.Y .2006 - 07 RS.100,000 AMOUNT RECEIVED IN F.Y.2007 - 08 RS.100,000 OPENING BALANCE AS ON 01/04/2009 RS.16,60,000 LESS : CORPUS FUND DEBITED TO BAD DEBTS ACCOUNT RS.10,00,000 ADDITIONAL COMPENSATION DEBITED TO BAD DEBTS ACCOUNT RS.576,000 15,76, 000 BA LANCE RECEIVABLE IS ALSO DEBITED TO BAD DEBTS ACCOUNT RS.84,000 OUT OF ABOVE PAYMENT, THE CIT(A) HAS ONLY ALLOWED RS.84,000/ - ON THE GROUND THAT SINCE IT IS A CASE OF SET OFF OF AMOUNT RECEIVABLE AGAINST AMOUNT PAYABLE BY THE ASSESSEE TO SHRI KHATARA ON ACCOUNT OF THE CORPUS FUND AND ADDITIONAL COMPENSATION. FROM THE RECORD WE FOUND THAT THE SAID ITA NO. 7615 / 1 4 5 AMOUNT OF RS. 15,76,000/ - WHICH WAS ADJUSTED AGAINST THE CORPUS FUND PAYABLE AND AGAINST COMPENSATION PAYABLE COULD HAVE BEEN DEBITED TO THE PROFIT AND LOSS ACCO UNT AS AN EXPENSE HAD THE ADJUSTMENT OF AMOUNT PAYABLE TOWARDS CORPUS FUND AND TOWARDS COMPENSATION NOT BEEN MADE. HOWEVER, T HE ASSESSEE HAS DEBITED BAD DEBTS ACCOUNT BY RS. 15,76,000/ - INSTEAD OF RS. 10,00,000/ - AS CORPUS FUND EXPENSE AND RS.576,000/ - AS CO MPENSATION PAYABLE. THUS, THERE IS NO IMPACT ON REVENUE SINCE SAID SUM OF RS. 15,76,000/ - REMAINS DEBITED TO THE PROFIT AND LOSS ACCOUNT IRRESPECTIVE OF THE FACT WHETHER UNDER THE HEAD BAD DEBTS OR UNDER ANY OTHER HEAD OF EXPENSE. THUS, THE SAID AMOUNT IS A LLOWABLE AS BUSINESS LOSS. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS. 15,76,000/ - . 6 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . O RDER PRONOUNCED IN THE OPEN COURT ON THIS 08/04 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 08/04 /201 5 . . /PKM , . / 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//