OM CONSTRUCTION P.LTD, MUMBAI V. ITO 5(2)(1), MUMBAI

ITA 8433/MUM/2010

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2548 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 03-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business expenditure; Assessment record; Commercial expediency
• Section: 143(3); 260A; 148

Judgement Text

M/S OM CONSTRUCTION PVT LTD IT A NO. 8433 /MUM/201 0 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C , MUMBAI . , , BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMBER IT A NO. : 8433 / MUM/20 1 0 (ASSESSMENT 2007 - 08) M/S OM CONSTRUCTI O N PVT LTD , 205, 2 ND FLOOR, OM CHAMBERS, KEMPS CORNER, MUMBAI - 400 - 400 036 .: PAN: AA ACO 17 9 1 P VS ITO - 5(2)(1), MUMBAI ( APPLICANT) (RESPONDENT) APPLICANT BY : SHRI ANIL SATHE RESPONDENT BY : SHRI VACHASPATI TRIPATHI /DATE OF HEARING : 29 - 0 7 - 201 5 / DATE OF PRONOUNCEMENT : 3 0 - 10 - 201 5 ORDER , . . : PER AMIT SHUKLA, J M : THE A FORESAID APPEAL HA S BEEN FILED BY ASSESSEE AGAINST IMPUGNED ORDER DATED 19 . 1 0 .20 1 0 , PASSED BY CIT(A) - 9 , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) R.W.S. 147 FOR ASSESSMENT YEAR 2007 - 08. THE ASSESSEE IS MAINLY AGGRIEVED BY FOLLOWING ADDITIONS/DISALLOWANCE AS RAISED IN VARIOUS GROUNDS OF APPEAL: - SR. NO. GROUND NO. NATURE OF DISALLOWANCE AMOUNT ADDED RS. 1 1 DISALLOWANCE OF ADMINISTRATIVE EXPENSES 1,97,34,469 2 2 DISALLOWANCE OF CONSTRUCTION EXPENSES 7 , 21,726 3 3 DISALLOWANCE OF MADE FOR PROVISION OF OF INCOMPLETE ADDITION AL WORK 50,00,000 4 4 ADDITION ON A/C OF DIFFERENCE IN ITAT ORDER (BETWEEN RS. 16,22,624 - 900,000) 7,22,726 M/S OM CONSTRUCTION PVT LTD IT A NO. 8433 /MUM/201 0 2 2. BESIDES THIS, IN GROUND NO. 5 & 6, THE ASSESSEE HAS TAKEN WITHOUT PREJUDICE GROUNDS THAT SUCH A DISALLOWANCE MADE ON THE BASIS OF DVOS REPORT COULD NOT HAVE BEEN MADE AND OTHERWISE THESE EXPENSES WERE PURELY FOR COMMERCIAL EXPEDIENCY. IN GROUND NO. 7, THE ASSESSEE HAS CHALLENGED THE LEVY OF PENAL INTEREST. 3 . AT THE OUTSET, LD. COUNSEL SUBM ITTED THAT GROUND NO. 4 CHALLENGING THE ADDITION OF RS.7 ,22,726 IS NOT PRESSED, ACCORDINGLY, SAME IS BEING DISMISSED AS NOT PRESSED. 4 . BRIEF FACTS OF THE CASE QUA THE ADDITIONS/DISALLOWANCES MADE ARE THAT, ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF BUILDER AND DEVELOPING OF HOUSING PROJECT. THE ASSESSEE HAD UNDERTAKEN CONSTRUCTION WORK OF ONE HOUSING PROJECT , THE COMMENCEMENT OF THE SAID PROJECT STARTED IN THE AY 1988 - 89. THOUGH THE SAID PROJECT WAS COMPLETED QUITE AN E XTENT IN AN AROUND AY1995 - 96 , HOWE VER, ON ACCOUNT OF LITIGATION BEFORE THE BOMBAY HIGH COURT AND CITY CIVIL COURT , WHEREIN THE ASSESSEE WAS REQUIRED TO PROVIDE NECESSARY PAR KING SPACE AND COMPOUND WALL ETC., THE SAID PROJECT WAS NOT SUBMITTED FOR COMPLETIO N. THE ASSESSEE DECLARED ITS PROJECT COMPLETED IN THE ASSESSMENT YEAR 2007 - 08 I.E., IN THE IMPUGNED ASSESSMENT YEAR . FROM THE ASSESSMENT YEAR 1998 - 99 TO 2005 - 06, THE ASSESSEE DID NOT FILE ITS RETURN OF INCOME ON THE GROUND THAT PROJECT WAS NOT YET COMPLETE D. THE AO HAD EARLIER REFERRED THE ENTIRE PROJECT FOR VALUATION TO THE DVO AND NOTICES U/S 148 WERE ISSUED FOR THESE YEARS . DURING THE COURSE OF SUCH VALUATION, THE ASSESSEE HAD CONTENDED THAT MAJOR PART OF THE CONSTRUCTION WAS COMPLETED BEFORE 1997, HOWEV ER, THE AMOUNT WAS NOT OFFERED FOR TAX, BECAUSE OF THE LITIGATION IN THE COURT. IN THE EARLIER YEAR THE ISSUE , WHETHER THE ASSESSEE HAS BEEN FOLLOWING THE PROJECT COMPLETION METHOD OR NOT , HAS ATTAINED FINALITY FROM THE STAGE OF THE TRIBUNAL , WHEREIN THE P ROJECT COMPLETION METHOD HAS BEEN ACCEPTED . AGAINST THE SAID ORDER OF THE TRIBUNAL APPEAL BEFORE THE HIGH COURT WAS FILED BY THE DEPARTMENT U/S 260A , HOWEVER, THE DEPARTMENT WITHDREW THE APPEAL LATER ON AND ACCORDINGLY; THE M/S OM CONSTRUCTION PVT LTD IT A NO. 8433 /MUM/201 0 3 ORDER OF THE TRIBUNAL BECAME FINAL. FROM ASSESSMENT YEAR 1998 - 99 ONWARDS, THE ASSESSEE HAD INCURRED SOME MINOR CONSTRUCTION EXPENSES WHICH FROM THE ASSESSMENT YEAR 1998 - 99 TO 2001 - 02 AGGREGAT ED TO RS. 9,22,726/ - . THIS AMOUNT WAS CAPITALIZED IN THE BOOKS AS WORK - IN - PROGRESS. LIKEWISE T HE ADMINISTRATIVE EXPENSES FROM THE AY 1998 - 99 TO 2007 - 08 AGGREGATED TO RS. 1,97,34,474/ - , WHICH TOO WAS CAPITALISED . HOWEVER, THE AO IN THE EARLIER YEARS HAD DISALLOWED THESE EXPENSES ON ADHOC BASIS AFTER APPLYING SOME PERCENT AGE, WHICH WAS DELETED BY THE APPELLATE AUTHORITIES. IN THIS MANNER MAJOR PART OF THE EXPENSES DEBITED TO THE WORK - IN - PROGRESS ACCOUNT STOOD ALLOWED. IN THIS YEAR THE AO HAS DISALLOWED THE ADMINISTRATIVE EXPENSES AND CONSTRUCTION EXPENSES ON THE GROUND THA T THE ASSESSEE HAD SHOWN CONSTRUCTION EXPENSES OF RS. 9,2 2 ,726/ - AFTER THE COMPLETION OF THE PROJECT AND ALSO THE ADMINISTRATIVE EXPENSES OF RS.1,97,34,469/ - DO NOT PERTAIN OR FORM PART OF THE COST OF THE PROJECT AS THE PROJECT WAS COMPLETED IN 1997 - 98. HIS ENTIRE REASONING WAS BASED ON THE DVOS REPORT THAT NO CONSTRUCTION WAS DONE POST AY 1997 - 98. ACCORDINGLY, AO DISALLOWED THESE EXPENSES. FURTHER, THE ASSESSEE HAD MADE A PROVISION OF EXPENSES OF RS. 50 LAKHS ON THE GROUND THAT, CERTAIN WORK WAS STILL TO B E CARRIED OUT FOR WHICH THE EXPENSES ESTIMATED BY THE MANAGEMENT WAS AT RS. 50 LAKHS. THE ASSESSEES CONTENTION BEFORE THE AO WAS THAT THE ENTIRE SALE PROCEEDS RECEIVED/RECEIVABLE ON THIS PROJECT HAS BEEN CREDITED TO THE PROFIT & LOSS ACCOUNT. THE ITEMS WH ICH ARE NOT COMPLETED , COMPAN Y WAS REQUIRE TO COMPLETE, AND CERTAIN EXPENDITURES WERE INCURRED. SINCE P&L ACCOUNT O F THE PROJECT HAS BEEN DETERMINED DURING THE YEAR , THEREFORE , THE EXPENDITURE ON INCOMPLETE WORK HAVE BEEN PROVIDED IN THE BOOKS OF ACCOUNTS, WHICH ARE DEDUCTIBLE. LD. AO, HOWEVER, REJECTED THE ASSESSEES CONTENTION FOR THE SAME REASON. 5 . BEFORE THE CIT(A), AGAIN THE ASSESSEE MADE VERY ELABORATE SUBMISSION WHICH HAS BEEN INCORPORATED FROM PAGES 8 TO 11 OF THE APPELLATE ORDER. HOWEVER, T HE LD. CIT(A) TOO CONFIRMED THE SAID M/S OM CONSTRUCTION PVT LTD IT A NO. 8433 /MUM/201 0 4 DISALLOWANCE ON THE GROUND THAT ALL THE EVIDENCES FILED BY THE ASSESSEE CALLED UPON BY THE ASSESSEE DURING THE APPELLATE PROCEEDINGS WERE NOT GENUINE AND ASSESSEE HAS FAILED TO PROVE TO PROVIDE CONCLUSIVE EVIDENCE THAT THE CO NSTRUCTION WAS CONTINUED EVEN AFTER 1997 - 98 AND THE EXPENDITURE SHOWN UNDER THE HEAD BUSINESS EXPENDITURE ARE NOT OF PERSONAL NATURE. REGARDING PROVISION OF RS. 50 LAKHS ALSO, FIRST APPELLATE AUTHORITY REJECTED ASSESSEES CONTENTION ON THE GROUND THAT ASSESSEE HAS BEEN UNABLE TO EXPLAIN AS TO WHY SUCH A REQUIREMENT OF INCURRING THE EXPENDITURE HAS NOT BEEN FULFILLED EVEN AFTER PASSAGE OF SUCH A LONG TIME. ACCORDINGLY , HE DISMISSED ALL THE GROUNDS RAISED BY THE ASSESSEE. 6 . AFTER HEARING BOTH THE PARTIES AT LENGTH, WE FIND THAT IN THE PAST IT HAS BEEN ACCEPTED THAT, ASSESSEE HAS BEEN FOLLOWING PROJECT COMPLETION METHOD. MOST OF THE CONSTRUCTION OF THE PROJECT HAD COMMENCED FROM ASSESSMENT YEAR 1998 - 99 AND WAS FINISHED UPTI LL AY 1997 - 98. IT WAS DUE TO LITIGATION IN THE BOMBAY HIGH COURT, THE PROJECT WAS NOT TREATED AS COMPLETE. FROM ASSESSMENT YEAR 1998 - 99 TO 2005 - 06, THE ASSESSEES CASE WAS COMPLETED UNDER SCRUTINY PROCEEDINGS U/S 148 R.W.S. 143(3), WHEREIN THE EXPENSES ON ACCOUNT OF CONSTRUCTION AND ADMINISTRATION ( WHICH WERE CAPITALIZED IN THE BOOKS AS WORK - IN - PROGRESS ) WERE PARTLY ALLOWED BY THE AO , IN AS MUCH AS T HE AO HAD MADE AD - HOC DISALLOWANCES @ 15% OF THE ADMINISTRATIVE EXPENSES . NOW SUCH DISALLOWANCES STANDS DELET ED BY THE LD. CIT(A) WHICH HAS BEEN UPHELD BY THE TRIBUNAL. EVEN THE REVENUES APPEAL CHALLENGING THE ORDER OF THE TRIBUNAL HAS BEEN DISMISSED BY THE HONBLE HIGH COURT. IN AY 2006 - 07, THE ASSESSEE HAD AGAIN CLAIMED ADMINISTRATIVE EXPENDITURE OF RS. 10,2 6,036/ - WHICH WAS DISALLOWED BY THE AO COMPLETELY ON THE GROUND THAT IN THE DVOS REPORT, IT WAS MENTIONED THAT THE CONSTRUCTION WAS COMPLETED IN THE YEAR 1997 ITSELF AND NO WORK WAS UNDERTAKEN THEREAFTER, THEREFORE, THE EXPENSES CLAIMED BY THE ASSESSEE CA NNOT BE ALLOWED. HOWEVER, IN THE FIRST APPELLATE STAGE, SUCH A M/S OM CONSTRUCTION PVT LTD IT A NO. 8433 /MUM/201 0 5 DISALLOWANCE MADE BY THE AO WAS DELETED ON THE GROUND THAT ASSESSEE HAS BEEN FOLLOWING PROJECT COMPLETION METHOD AND PROJECT WAS ACTUALLY COMPLETED IN AY 2007 - 08. ASSESSEE HAS NOT CLAIMED ANY D EDUCTION FOR EXPENSES BUT SAME HAS BEEN CAPITALIZED AS WORK - IN - PR OGRESS , THEREFORE ANY ALLOWBILITY OR DIS ALLOWBILITY OF THE EXPENSES CAN BE SEEN IN THE AY 2007 - 08 ONLY. THE TRIBUNAL IN THE SECOND APPEAL FILED BY THE REVENUE FOR THE AY 2006 - 2007 , VIDE ORDER DATED 15 TH FEBRUARY, 2011 U PHELD THE ORDER OF THE CIT(A) FOR ALLOWING THE EXPENDITURE CAPITALIZED TO WORK - IN - PROGRESS IN AY 2006 - 07. NOW, IN THE PRESENT ASSESSMENT YEAR, THE ASSESSEE HAS SHOWN THE ENTIRE INCOME ON PROJECT COMPLETION METHOD BY SHOWING THE SALE CONSIDERATION OF THE PROJECT IN THIS YEAR. ALL SUCH EXPENDITURE CAPITALIZED IN WORK - IN - PROGRESS HAS BEEN AGGREGATED AND CLAIMED ACCORDINGLY. FROM THE PAST ASSESSMENT RECORDS, IT IS EVIDENT THAT, SO FAR AS THE EXPENSES ON CONSTRUCTION ACCOUNT FOR SUM S AGGREGATED TO RS. 9,22,726/ - HAD BEEN INCURRED AND CAPITALIZED UNTIL 2001 - 02 I.E. FROM 1998 - 99 TO 2001 - 02 , HAS BEEN ALREADY ALLOWED IN THE EARLIER YEARS AS T HESE EXPENSES WERE ALSO SUBJECT MATTER OF SCRUTINY INASMUCH AS PART OF IT WERE DISALLOWED BY THE AO BUT THEY HAVE BEEN ALLOWED BY THE CIT(A) RIGHT FROM 1998 - 99 TO 2001 - 02. AS REGARDS ADMINISTRATION EXPENSES ALSO, SUMS AMOUNTING TO RS. 1,65 , 14,107/ - STANDS ALLOWED UPTIL L THE STAGE OF CIT(A) AND TRIB UNAL FROM AY 1998 - 99 TO 2005 - 06. NOW THE ADDITION LEFT TO BE EXAMINED IS REGARDING EXPENSES F OR THE AY 2006 - 07 I.E., THE AMOUNT DISALLOWED OF RS. 10,21,036/ - WHICH HAS BEEN DIRECTED TO BE EXAMINED IN THIS YEAR AND THE EXPENSES FOR THIS ASSESSMENT YEAR 2007 - 08 WHICH IS RS. 21,99,331/ - WHICH HAS BEEN COMPLETE LY DISALLOWED BY THE AO AS WELL AS CIT(A). THE OVERALL POSITION OF THE EXPENSES CLAIMED ; DIS ALLOWED BY THE AO ; AND FINALLY ALLOWED AFTER GIVING EFFECT OF THE CIT(A) AS WELL AS ITAT ORDER ARE AS UNDER : - M/S OM CONSTRUCTION PVT LTD IT A NO. 8433 /MUM/201 0 6 AY EXPENSES ON CONSTRUCTION A/C EXP ON ADM INISTRATIVE A/C TOTAL TOTAL AMT. ALLOWED BY THE AO RELIEF BY CIT(A)/ ITAT FINAL SUM ALLOWED 1998 - 99 4,76,514 35,18,045 39,94,559 39,94,559 0 39,94,559 1999 - 00 2, 03 ,002 23,69,183 25,72,185 15,23,685 10,48,500 25,72,185 00 - 2001 1,73,210 20,63,113 22,36,323 11,87,823 10,48,500 22,36,323 2001 - 02 70,000 9,31,949 10,01,949 10,01,949 0 10,01,949 2002 - 03 0 10,33,754 10,33,754 10,33,754 0 10,33,754 2003 - 04 0 20,62,752 20,62,752 18,53,495 0 18,53,495 2004 - 05 0 31,43,123 31,43,123 30,55,655 0 30,55,655 2005 - 06 0 13,92,188 13,92,188 9,17,058 0 9,17,058 TOTAL 92 ,27,726 16514107 17436833 14567967 2097000 16664967 2006 - 07 0 10,21,036 10,21,036 0 0 0 2007 - 08 0 21,99,331 21,99,331 0 0 0 TOTAL(B) 0 32,20,367 32,20,367 0 0 0 A + B 9,22,726 19734474 20657200 14567967 2097000 16664967 FROM THE ABOVE TABLE, IT IS APPARENT THAT TOTAL EXPENDITURE OF RS. 1,66,64,967/ - STANDS ALLOWED WHICH INCLUDES SUM OF RS. 9,22,726/ - . A S STATED EARLIER , IN THE AY 2006 - 07, THE ADMINISTRATIVE EXPENSES OF RS. 10,21,036/ - WA S DISALLOWED BY THE AO BUT ALLOWED BY THE CIT(A) ON THE GROUND THAT SAME SHALL BE EXAMINED IN AY 2007 - 08. HOWEVER IN AY 2007 - 08, CIT(A) AND AO COMPLETELY DISALLOWED ON THE GROUND THAT EVIDENCE THAT ASSESSEE HAD INCURRED SUCH AN EXPENDITURE OR THEY ARE PERSONAL IN NATURE. THE LD. CIT(A) HAS NOT POINTED OUT ANY SPECIFIC EXPENDITURE AS TO WHY SAME ARE TREATED AS PERSONAL IN NATURE AND ARE NOT INCURRED FOR THE BUSINESS PURPOSE. THE CONCEPT AND THEORY THAT NO CONSTRUCTION WORK HAS BEEN CARRIED OUT FROM ASSESSMENT YEAR 1997 - 98 ITSELF HAS BEEN NEGAT ED BY CIT(A) AND TRIBUNAL IN EARLIER YEARS INASMUCH AS THESE EXPENDITURES DISALLOWED BY THE AO ON AD - HOC BASIS HAVE BEEN ALLOWED . THUS, WE HOLD THAT SUMS AGGREGATING TO RS. 1,66,64,967/ - INCLUDING EXPENSES ON ACCOUNT OF CONSTRUCTION OF RS. 9,22,726/ - IS ALLOWED AS THE SAME HAS BEEN ALLOWED IN THE EARLIER YEARS. NOW AS REGARD THE BALANCE SUM OF RS. 32,20,367/ - , IT CANNOT BE HELD THAT ALL THE EXPENDITURES INCURRED UNDER THE HEAD ADMINISTRATION CAPITALIZED / INCURRED IN THIS YEAR CANNOT BE HELD THAT IT IS NOT FOR THE BUSINESS PURPOSES. THUS, IN THE INTEREST OF JUSTICE, WE HOLD THAT 20% OF RS. 32,20,367/ - SHALL BE DIS ALLOWED. ACCORDINGLY, IN THE AGGREGATE, THE ASSESSEE GETS RELIEF OF RS. 1,66,69,967/ - PLUS RS . 25,26,294/ - IS ALLOWED AND M/S OM CONSTRUCTION PVT LTD IT A NO. 8433 /MUM/201 0 7 BALANCE AMOUNT IS DISALLOWED. ACCORDINGLY, GROUND NO. 1 IS PARTLY ALLOWED AND GROUND NO. 2 IS ALLOWED. 7 . AS REGARDS DISALLOWANCE OF PROVISION MADE FOR INCOMPLETE WORK AT RS. 50 LAKHS, WE DO NOT FIND ANY MERITS IN THE CONTENTI ON OF THE LD. COUNSEL MADE BEFORE US THAT ASSESSEE WAS REQUIRED TO CONSTRUCT GARDEN AND PARKING SPACE FOR WHICH ASSESSEE HAS EARMARKED PROVISION OF RS. 50 LAKHS . SUCH A PROVISION CANNOT BE ALLOWED FIRSTLY, FOR THE REASON THAT ASSESSEE COULD NOT PRODUCE ANY EVIDENCE TO SHOW THAT IT WAS REQUIRED TO CONSTRUCT SUCH SPACE FOR WHICH IT HAS TO INCURRED 50 LAKHS AND THE ASSESSEE HAS NOT BEEN ABLE TO SHOW BY WAY OF ANY EVIDENCE AS TO WHY SUCH A REQUIREMENT COULD NOT BE FULFILLED EVEN AFTER A PASSAGE OF LONG TIME. TH E FINDING AND THE OBSERVATION MADE BY THE AO AS WELL AS CIT(A) ON THIS SCORE CANNOT BE DEVIATED WITHOUT ANY PROPER MATERIAL TO SHOW THAT ASSESSEE WAS REQUIRED TO INCUR SUCH AN EXPENDITURE OR HAD INCURRED THIS EXPENDITURE IN FUTURE ESPECIALLY WHEN THE INCOM E FROM ENTIRE PROJECT HAS BEEN SHOWN IN THE ACCOUNTS IN THIS YEAR. ACCORDINGLY, GROUND NO. 3 IS DISMISSED. 8 . GROUND NO. 5 & 6 ARE ALTERNATE GROUND, WHICH ARE ADJUDICATED UPON AS BEING PURELY ACADEMIC AND ACCORDINGLY , BOTH THE GROUNDS ARE DISMISSED. 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH OCTOBER , 2015. SD/ - SD/ - ( . ) ( ) ( D. KARUNAKARA RAO ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 30 TH OCTOBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. M/S OM CONSTRUCTION PVT LTD IT A NO. 8433 /MUM/201 0 8 2 ) / THE RESPONDENT. 3) THE CIT (A) - 9 , MUMBAI. 4 ) THE CIT - 5 , MUMBAI. 5 ) , , / THE D.R. C BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS