Income Tax Appellate Tribunal - Mumbai
Bhoomi Construction Project, Thane vs Department Of Income Tax on 15 May, 2015
आयकर अपील
य अ धकरण "B" यायपीठ मब
ंु ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI
BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER &
SHRI AMIT SHUKLA, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No. 1267 /Mum/2013
( नधा रण वष / Assessment Year : 2008-2009
Bhoomi Construction बनाम/ ACIT, Central Circle -2,
Projects, Thane,
Vs.
Plot No. 8, Sector 11, Room No. 13, A Wing,
Opp. Juinagar Railway 6 t h floor,
Station, Asher I T Park,
Sanpada, Road No. 16Z,
Navi Mumbai 400 075, Wagle Indl. Estate,
Thane - 600 604.
थायी ले खा सं . /PAN :AAHEB9743D
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं./I.T.A. No. 2174 /Mum/2013
( नधा रण वष / Assessment Year : 2008-2009
ACIT, Central Circle -2, बनाम/ Bhoomi Construction
Thane, Projects,
Vs.
Room No. 13, A Wing, Plot No. 8, Sector 11,
6 t h floor, Opp. Juinagar Railway
Asher I T Park, Station,
Road No. 16Z, Sanpada,
Wagle Indl. Estate, Navi Mumbai 400 075,
Thane - 600 604.
थायी ले खा सं . /PAN :AAHEB9743D
(अपीलाथ /Appellant) .. ( यथ / Respondent)
2 ITA 1267,2174,1268& 2175/Mum/13
आयकर अपील सं./I.T.A. No. 1268 /Mum/2013
( नधा रण वष / Assessment Year : 2009-2010
Bhoomi Construction बनाम/ ACIT, Central Circle -2,
Projects, Thane,
Vs.
Plot No. 8, Sector 11, Room No. 13, A Wing,
Opp. Juinagar Railway 6 t h floor,
Station, Asher I T Park,
Sanpada, Road No. 16Z,
Navi Mumbai 400 075, Wagle Indl. Estate,
Thane - 600 604.
थायी ले खा सं . /PAN :AAHEB9743D
(अपीलाथ /Appellant) .. ( यथ / Respondent)
आयकर अपील सं./I.T.A. No. 2175 /Mum/2013
( नधा रण वष / Assessment Year : 2009-2010
ACIT, Central Circle -2, बनाम/ Bhoomi Construction
Thane, Projects,
Vs.
Room No. 13, A Wing, Plot No. 8, Sector 11,
6 t h floor, Opp. Juinagar Railway
Asher I T Park, Station,
Road No. 16Z, Sanpada,
Wagle Indl. Estate, Navi Mumbai 400 075,
Thane - 600 604.
थायी ले खा सं . /PAN :AAHEB9743D
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Assessee by Ms. Ritika Agarwal
Respondent by : Shri S.J. Singh - CIT- D.R
ु वाई क तार ख / Date of Hearing
सन : 07-05-2015
घोषणा क तार ख /Date of Pronouncement :15-05-2015
[
आदे श / O R D E R
PER AMIT SHUKLA, J.M. :
The aforesaid cross appeals have been filed by the Revenue as well as assessee against separate impugned orders dated 29-11-2012, passed by the 3 ITA 1267,2174,1268& 2175/Mum/13 ld. CIT(A) - 1, Thane for the quantum of assessment passed u/s 153A r.w.s. 143(3) of the Income Tax Act, 1961 ("the Act") for the assessment years 2008- 09 and 2009-10.
2. First, we shall take up Revenue's appeal in ITA No. 2174/Mum/2013 for A.Y. 2008-09, vide which the following ground has been raised:-
"Whether on facts and in the circumstances of the case, CIT(A) was justified in deleting the addition made by the Assessing Officer on account of income which was disclosed without any threat or coercion and which was not retracted till the date of filing of return."
3. Exactly similar ground has been raised by the Revenue in ITA No. 1267/Mum/2013 for A.Y. 2009-10 also.
4. Brief facts of the case are that, the assessee is a partnership firm having two partners, namely, Shri Vijay Ravji Gajra and Shri Amrut Kanji Nisar, which came into existence, w.e.f. 1-1-2007. The assessee firm is engaged in the business of builder and developer and had undertaken the development of a project, namely, "Ellora Fiesta" in Navi Mumbai. A search and seizure action u/s 132(1) of the Act was carried out in the case of Gajra Group on 19-2-2009. During the course of search proceeding, a sum of Rs. 15 crores was voluntarily admitted and offered for whole as a Gajra Group. Out of the said declaration of Rs. 15 crores, sum of Rs. 63 lakhs pertains to the assessee for A.Y. 2008-09 on account of income from the project and Rs. 73 lakhs for A.Y. 2009-10. However, at the time of the filing of the return of income, the assessee did not offer this income in the return of income filed in response to notice u/s 153A. Accordingly, the assessee was required to show cause as to why the income of Rs. 63 lakhs should not be added to the income of the project on the basis of "percentage completion method" as voluntarily admitted and offered by the assessee during the course of search proceeding, in the statement recorded u/s 132(4). In response, the assessee submitted that its housing project commenced from 29-9-2007 and during 4 ITA 1267,2174,1268& 2175/Mum/13 the year under consideration it was an ongoing project. For the period under consideration, the Profit & Loss Account indicate net profit of Rs. 6,48,882/-, indirect income of Rs. 7,93,984/- and Work in Progress (WIP) at Rs. 8,03,75,941/-. The cost of the land shown in the current assets was at Rs. 24,49,84,000/-and stamp duty and registration charges paid were shown at Rs. 22,90,000/-. It was submitted that income shown in the return of income was only indirect income and no element of business income from the project was shown in the return of income, because the assessee was following "Project Completion Method" for the revenue recognition and not the "Percentage Completion Method". It was stated that assessee was following Accounting Standard - 9 for the revenue recognition as prescribed in the case of builder. Reliance was also placed on several decisions that project completion method is an well accepted method of accounting for the builders and developers. The assessee's submission in this regard have been incorporated by the A.O. from pages 2 to 4 of his assessment order. However, the A.O. rejected the assessee's contention merely on the ground that during the course of search proceeding, the assessee itself has offered the income on estimated basis for the assessment years 2008-09 and 2009-10 and accordingly, as per the discussion appearing at page 5 of the assessment order, he added an amount of Rs. 63 lakhs as income of the year under percentage completion method.
5. Before the ld. CIT(A), the assessee contended that it had offered additional income only after being wrongly guided by the search party that the developers had to compulsorily follow the "Percentage Completion Method" for the calculation of profits. This was a complete misrepresentation of facts regarding the applicability of the accounting standards by the search party to the assessee during the course of search proceeding. The builders and developers are governed by revised AS -9 which prescribe revenue recognition on the completion of the project and there are various decisions 5 ITA 1267,2174,1268& 2175/Mum/13 which have also endorsed the same proposition. Further, the assessee submitted that it is not a contractor but real estate developer and the project completion method is also one of the revised methods of accounting the income. The ld. CIT(A) after considering the assessee's submission and reasoning of the A.O., held that for the purpose of recognition of income in the case of a contractor or developer as per AS - 7, there are two methods of accounting for realization of revenue in the construction business viz. (i) percentage completion method & (ii) completed contract method and both are recognized for disclosing the profit. There is no specific method prescribed by the Income Tax Act for revenue recognition in the case of builder or real estate developer. It is the discretion of the developer/builder to adopt any of the two method of revenue recognition which is best suited. Thereafter, he noted down the entire facts and the statement recorded during the course of search & survey operation, and deleted the addition after observing and holding as under:-
"5. In the instant case, the project of the appellant "Ellora Fiesta" at Sanpada, Navi Mumbai, has commenced construction vide commencement certificate granted by the Navi Mumbai Municipal Corporation on 29/09/2007. A search and seizure action u/s.132(1) was carried out at the premises of the assessee on 19/02/2009 and during the search operations, in a statement recorded during the course of survey u/s.133A in the case of Shri Ramesh Gajra at the business premises of MIs. Triveni Developers on 20102/2009, vide question 9, the survey party pointed out that as per the Accounting Standard AS-15 issued by the ICAI, the percentage completion method has been made compulsory in the case of developers w.e.f. 01/04/2004. After being told so, Shri Ramesh Gajra agreed to offer the additional income of Rs. 63,00,0001- as on 31/03/2008 on behalf of the appellant firm for taxation on the basis of the percentage completion method, even though the project was completed upto 13% only, the fact which has been recorded by the AD also in the assessment order for the year under consideration. Since the project of the appellant had just begun in the year under consideration merely six months back i.e. on 29/09/2007 and the same being a long term project, it would be totally unrealistic to estimate the net profit and offer the same for taxation within a period of six months and taxing the same on percentage completion method, when the project is just 13% completed.
6 ITA 1267,2174,1268& 2175/Mum/13 4.6. The contention of the AO that the appellant had voluntarily offered the additional income on percentage completion method is not correct. The appellant had made the offer of additional income for the year under consideration in a letter of offer filed by the Gajra group before the Addl. DIT (Inv.) Kalyan on 12/04/2009. The perusal of the above letter filed before the Addl. DIT (Inv.) Kalyan, clearly shows that the appellant had offered the additional income for the A.Y. 2008-09 and 2009-10 after the direction of the search party to the effect that the declaration of the income on percentage completion method has been made compulsory by the AS-15 w.e.f. 01/04/2004 and to be followed as per section 145 of the I.T. Act 1961. It was only after such guidance and direction given by the search/survey party that the appellant came out the declaration of additional income for the year under consideration. This fact has been stated even in the letter of offer dated: 12/04/2009 filed before the Addl. DIT (Inv.) Kalyan. In my opinion, giving such a guidance or advice in the statement recorded during the survey was beyond the jurisdiction of the search/survey party. On such an advice, the appellant offered the estimated additional income for the period under consideration which is an estimated figure without any real working of the profits. From the facts mentioned above, it can be observed that the act of offering the additional income was not voluntary but under a misbelief inculcated by the search party that the declaration of the profits on percentage completion method is mandatory as per AS-15 and section 145 of the I.T. Act, 1961. Thus, the offer of income was not voluntary but under the guidance and direction given by the search party to do the same. Even in the letter of offer, nowhere it is mentioned that the appellant is offering the above additional income voluntarily and therefore the argument of the AO that the appellant offered the above additional income for the year under consideration voluntarily, is not correct. Even section 145 of the Income-tax Act, 1961 provides that the business income of the assessee for an assessment year shall be computed based on the method of accounting consistently followed by the assessee and in the instant case the method being regularly followed is the project completion method, which cannot be disturbed unless there are strong reasons for the same to do so. The AO has not given any reason for adopting the percentage completion method in the instant case and therefore his action of doing the same cannot be justified.
4.7. Further, the AO while applying the percentage completion method in the instant case, has not examined the books of accounts and simply proceeded to work out the income of the appellant for the year under consideration on the basis of the estimated working given during search proceedings. The argument of the AO that the appellant had received advances on the bookings amounting to Rs. 7,64,67,730/- during the period under consideration cannot be the basis for the determining the profits of the appellant. In order to reject the method of calculating the profits of the appellant and substituting it with percentage completion method. The AO should have examined the books of accounts for the 7 ITA 1267,2174,1268& 2175/Mum/13 period under consideration, which are admittedly properly maintained, and pointed out the defects in such books of accounts and then proceed to reject the regular method of accounting being followed by them applying the provisions of section 145. After rejection of the books of accounts, the AO should have worked out the sales after allowing the, expenditure for the period and estimate the profits by applying the percentage completion method. The AO simply proceeded to tax the profits of the appellant firm on percentage completion method by relying on the statement of the partner of the firm Shri Ramesh Gajra during survey at the business premises of M/s. Triveni Developers on 20102/2009 and on the basis of working given thereafter for the additional income. Without following a proper procedure laid down under the I.T. Act, the AO cannot reject the method of accounting regularly being followed by the appellant and arbitrarily substituting the same with any alternative method.
4.8. There is a merit in the contention of the appellant that the methods of revenue recognition as prescribed under AS-7 are for the contractors and in the case of builders or the real estate developers the revised AS-9 is the prescribed method for revenue recognition. The accounting standards have been revised from 01/04/2003 and as per the revised standards and AS-7 is prescribed for the contractors and revised AS-9 has been prescribed for the real estate developers or the builders. It has been prescribed in the AS-9 that the revenue in the case of real estate sales should be recognised when all the following conditions are satisfied :-
i) The seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the real estate transferred to a degree usually associated with the ownership;
ii) At the time of the transfer of all significant risks and rewards of ownership, it is not unreasonable to expect the ultimate collections; and
iii) No significant uncertainty exists regarding the amount of consideration that will be derived.
4.9. If the above prescribed revised accounting standards AS-9 for the real estate developers are applied to the project of the appellant, can it be definitely concluded that the appellant has transferred to the buyer all significant risks and rewards of ownership and the appellant retains no effective control of the shops / flats transferred to a degree usually associated with the ownership or can it be concluded that no significant uncertainty exists regarding the amount of consideration that will be derived ultimately from the sales effected in respect of this project. Looking at-the stage of the project of the appellant, which is complete only to the extent of 13%, it cannot be said with certainty that it has 8 ITA 1267,2174,1268& 2175/Mum/13 reached to a level where the seller has transferred to the buyer all significant risks and rewards of ownership and the seller retains no effective control of the shops/ flats transferred. The project of the appellant is at initial stage and it would be totally unrealistic to assess the profits from this project during the period under consideration because the revenue cannot be recognized at this stage as there can be subsequent cancellation of the sales made during the period or even increase in the profits according to the prevailing market conditions. In such a situation, it would not be possible to assess the correct profits in any year except the year in which the project is completed. Therefore, applying the percentage completion method to assess the profits of the appellant for the year under consideration would be unrealistic and unreasonable."
6. The ld. CIT(A) further required the A.O. to furnish various details as enumerated in para 4.13, so as to ascertain as to which method of accounting the assessee has been generally following in the other projects. However, the A.O. did not responded to the same and accordingly, the ld. CIT(A) held that the project completion method followed by the assessee is an accepted method and there is no reason to deviate from such method without any strong reason and finally he deleted the addition made on account of profit after applying the percentage completion method.
7. Before us, the ld. CIT-DR strongly relied upon the order of the A.O. and submitted that, once the assessee itself has accepted to offer the income as per the percentage completion method at the time of search, then without any compelling reason the assessee could not have retracted on the ground that it has been following project completion method. This was clearly an after thought. Thus, the order of the A.O. should be sustained.
8. On the other hand, the ld. Counsel for the assessee, Ms. Ritika Agarwal strongly relied upon the order of the ld. CIT(A) and submitted that the A.O. himself in the assessment year 2012-13 had completed the assessment on the basis of "project completion method" when the said project was completed. Now, the Revenue is taking different stand, that in the earlier year the revenue should be recognized as per percentage completion method and 9 ITA 1267,2174,1268& 2175/Mum/13 in the subsequent year it should be on the basis of project completion method. This, she submitted cannot be upheld. In support, she filed a copy of assessment order dated 25-2-2015 for the A.Y. 2012-13.
9. We have heard the rival submissions and also perused the relevant findings given in the impugned order. The sole reason for making the addition by the A.O. is that, at the time of search the assessee had offered to disclose the income on the basis of percentage completion method which has been retracted later on. However, there is no finding that the assessee has been following percentage completion method regularly since beginning or in any other project. There is no such evidence or documents which have been found during the course of search indicating that the assessee had been following percentage completion method regularly. If the assessee has been following one of the recognized methods as prescribed by AS-9, then it cannot be held that the Revenue can impose a different method upon the assessee unless there is a finding of fact that such a method is not reflecting the true profits of the assessee. Now it has also been brought on record by the ld. Counsel that in the subsequent year i.e. in the year of completion of the project in A.Y. 2012-13, the Revenue itself has accepted the project completion method for recognition of revenue and accordingly, has assessed the income of the project on the same method. Thus, a contrary view cannot be taken for this year. Moreover, the finding recorded by the ld CIT(A) after detail discussion as incorporated above is not only factually correct but also legally sustainable and therefore such a finding and conclusion of the ld. CIT(A) is affirmed and the grounds raised by the Revenue is dismissed.
10. Since similar ground has been raised by the Revenue in the A.Y. 2009- 10 and similar finding has been given by the A.O. and the ld. CIT(A), therefore, the finding given upon will mutatis-mutandis and accordingly, the grounds raised by the Revenue in A.Y. 2009-10 is also dismissed.
10 ITA 1267,2174,1268& 2175/Mum/13
11. In the result, appeal of the Revenue for assessment years 2008-09 & 2009-10 are dismissed.
12. Now, we shall take up the appeal of the assessee in ITA No. 1267/Mum/2013 for A.Y. 2008-09, vide which following grounds have been raised:-
"BECAUSE, ld. CIT(A) has erred in law and on facts in upholding the estimated disallowance of interest u/s. 36(1 )(iii) on loans of Rs. 82,00,000/- and directing the AO to recalculate the same ignoring the fact that the advances were made for business purpose and should not be considered for interest disallowance.
2. BECAUSE, ld. CIT(A) has erred in law and on facts in upholding the addition of Rs.433,348/- paid to NMMC on account of statutory deposits, to the total income.
3. BECAUSE, ld. CIT(A) has erred in law and on facts in upholding the addition of Rs.16,292/- paid towards professional fees for registration of trademark with logo on the ground that the same is in the nature of capital expenditure.
WITHOUT PREJUDICE TO THE ABOVE BECAUSE, ld. CIT(A) has erred in not appreciating that even if the above expenses we disallowable, the same ought to be reduced from the WIP instead of making a separate addition."
13. Brief facts qua the disallowance of Rs. 6,80,853/- on account of proportionate interest u/s 36(1)(iii) are that, the A.O. on perusal of the Balance Sheet noted that the assessee had advanced interest free loan of Rs. 32 lakhs on 18-6-2007 to M/s Gahlot Construction and Rs. 50 lakhs on 14-8-2007 to M/s Konark Enterprises, aggregating to Rs. 82 lakhs. On the other hand, the assessee has also borrowed interest bearing secured and unsecured loan for which it has debited interest cost of Rs. 45,33,852/- in work-in-progress account. In response to the show cause as to why interest should not be disallowed on interest free loan, the assessee submitted and stated as under:-
11 ITA 1267,2174,1268& 2175/Mum/13 "In this respect we have to state that the advances given to M/s Gahlot Construction are for a short term basis. With respect to the advances given to M/s Konark Enterprises we have to state that the said advances are given for plot of land. Secondly our above client is following project completion method wherein all the expenses are debited to Work-in-Progress account. Even if the interest is proportionately disallowed, it should not be added to the total income but it should be reduced from Work-in-progress."
14. However, the A.O. rejected the assessee's contention and held that interest free funds borrowed by the assessee will be utilized for their own business purposes and such borrowed funds should remain in the business.
He also rejected the argument of the assessee for reducing the allowable interest from work-in-progress. Accordingly, he disallowed the proportionate interest of Rs. 6,80,853/- u/s 36(1)(iii) of the Act after taking the average rate of interest at 8%.
15. Before the ld. CIT(A), the assessee stated that the advance to M/s Konark Enterprises was given to acquire a plot of land for the purpose of business only, however, such transaction could not take place and as the land in question had become subject matter of litigation between the said party and the State of Maharashtra. The assessee also filed a copy of suit petition between the two parties. After calling for the remand report in this regard, the ld. CIT(A)held that the assessee could not prove that advance was on account of purchase of land in question, because the advance of Rs. 50 lakhs was given to M/s Konark Enterprises on 14-8-2007, whereas M/s Konark Enterprises had shown that land in question have been purchased by them on 27-2-2007. Similarly, the loan amounting to Rs. 32 lakhs was given to M/s Gahlot Construction which is for non-business purposes. Accordingly, he confirmed the disallowance.
16. Before us, Ms. Ritika Agarwal submitted that, first of all, the assessee had huge interest free funds in the form of capital which was Rs. 2,85,45,093/-, whereas the advance given was only Rs. 82 lakhs. In support 12 ITA 1267,2174,1268& 2175/Mum/13 of her contention, she drew our attention to the balance sheet as on 31-3- 2008 and also the copy of ledger account of the partner reflecting the opening balance of the capital account. If the assesse had sufficient interest free funds, then presumption is that advance has been given out of such interest free funds. In support of her contention, she strongly relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom.). Apart from this, she submitted that the advance of Rs. 50 lakhs was given to M/s Konark Enterprises for purchase of plot of land which is evident from the copy of confirmation given by the said party, which was filed before the A.O. as well as before the ld. CIT(A). In the said confirmation it has been clearly stated that the amount of Rs. 50 lakhs was in the nature of advance for the purchase of plot of land. However, the said plot had become subject matter of litigation and therefore, the transaction has not yet taken place. There is no material on record to show that this was not for purchase of land. As regards the allegation of the ld. CIT(A) that in the suit petition filed by M/s Konark Enterprises which shows that the land in question has already been purchased by them before the date of advance, she submitted that it will not make any difference as long as the party to whom advance was given was towards purchase of plot which has been confirmed by the said party. So far as the assessee is concerned, it has given money for purchasing the plot of land from M/s Konark Enterprises for its business purpose and, therefore, such an advance given for the purposes of business, no disallowance of interest is called for. Lastly, she submitted that the interest has been capitalized by the assessee as the assessee has been following project completion method, where all the expenses have been debited to WIP account and if any disallowance is called for, the same should be reduced from the WIP account and no addition should be made on this account. Regarding loan of Rs. 32 lakhs given to sister concern M/s Gahlot Construction, she submitted that the said loan too 13 ITA 1267,2174,1268& 2175/Mum/13 was given to the other firm in which there were common partners. This loan was given for the purpose of business only.
17. On the other hand, the ld. D.R. strongly relied upon the order of the ld. CIT(A) and submitted that so far as the first plea of the assessee is concerned, that the assessee had interest free funds, the same was not taken before the authorities below, therefore, the assessee needs to prove the co-relation between the advance given and the interest free advance. Such a plea cannot be entertained and if the same is admitted then the matter should be restored back to the file of the A.O. Regarding the second plea, he submitted that the finding of the ld. CIT(A) should be upheld which based on appreciation of facts.
18. We have heard the rival contentions and also perused the relevant material placed on record. The assessee had given advance of Rs. 50 lakhs to M/s Konark Enterprises and Rs. 32 lakhs to its sister concern, M/s Gahlot Construction, which is a partnership firm in which there are common partners. So far as the advance of Rs. 50 lakhs, it is seen from the record that the said amount was given for purchase of plot of land pertaining to Survey No. 187, Hissa 4A, situated at village Kharghar, Taluq Panvel. Since the assessee is the developer of the project, the said land was intended to be purchased for developing the project at Panvel. However, the transaction could not be materialized as there was litigation between M/s Konark Enterprises and the State of Maharashtra. This is evident from the copy of Petition filed before the authorities below. Once the advance has been given for the purchase of plot of land which is for business purposes then no adverse inference can be drawn so as to disallow the interest on the ground that the same is for non-business purpose. Similarly, the loan to the partnership firm has been in which the partners are common. The said firm too is engaged in the business of developer. Further, from the perusal of the 14 ITA 1267,2174,1268& 2175/Mum/13 balance sheet as pointed out by the ld. Counsel, it is seen that interest free funds in the form of capital is more than Rs. 2.85 crores, whereas the advance/loan given is only Rs. 82 lakhs and once the assessee had interest free funds, then presumption can be drawn that the same has been given from interest free funds. This proposition have been upheld by the Hon'ble jurisdictional High Court in the case of Reliance Utilities and Power Ltd. (supra) wherein the Hon'ble High Court observed and held as under:-
"If there be interest-free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest- free funds available. In our opinion the Supreme Court in East India Pharmaceutical Works Ltd.'s case (supra) had the occasion to consider the decision of the Calcutta High Court in Woolcombers of India Ltd. 's case (supra) where a similar issue had arisen. Before the Supreme Court it was argued that it should have been presumed that in essence and true character the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woocombers of India Ltd.'s case (supra) the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT (Appeals) and ITAT."
Thus, on this count also no disallowance is called for. Lastly, we agree with the alternative contention of the ld. Counsel that the assessee has been following 'project completion method' and such interest cost have been capitalized in the account, then no disallowance can be made in this year.
15 ITA 1267,2174,1268& 2175/Mum/13 Accordingly the disallowance of interest for a sum of Rs. 6,80,853/- stands deleted and the assessee's ground on this score is allowed.
19. In ground No. 2, the assessee has challenged the addition of Rs. 4,33,348/- paid to NMMC on account of statutory deposits to the total income.
20. The A.O. noted that the assessee had debited an amount of Rs. 35,59,491/- on account of Commencement Certificate expenses paid to NMMC to work-in-progress. On verification of receipt of payment, he found that a sum of rs. 2,12,140/- is towards security deposit, Rs. 98,104/- is towards debris deposits, Rs. 98,104/- is towards mosquito deposit and Rs. 25,000/- is towards tree plantation deposits which aggregates to Rs. 4,33,348/-. He held that such deposit cannot be allowed. The assessee, however, submitted that such expenses are incurred for procuring the Commencement Certificate of the project and these are not refundable and not received even after completion of the project. Further, since the assessee has been following project completion method, wherein all the expenses have been debited to WIP, therefore, such disallowance cannot be added to the total income but will go to reduce the WIP. The action of the A.O. has been affirmed by the ld. CIT(A).
21. After hearing both the sides, first of all, we do not find any reason to disallow the said amount, because the assessee has debited the same to WIP and if at all any disallowance is called for, then the same will go to reduce from the WIP. It cannot be added to the total income of the assessee during the year. On this ground alone, we do not find any reason to uphold such disallowance. Accordingly, ground No. 2 raised by the assessee is treated as allowed.
16 ITA 1267,2174,1268& 2175/Mum/13
22. In ground No. 3, the assessee has challenged the addition of Rs. 16,292/- paid towards professional fees for registration of trademark with logo on the ground that the same is capital expenditure.
23. In this regard, the assessee had contended that this expense has been debited to WIP and, therefore, in view of the reasoning given above, the same cannot be disallowed and added to the income of the assessee for this year, because if at all the disallowance is called for, it will go to reduce the WIP only. Accordingly, the disallowance made in this year cannot be sustained. Ground No. 3 is allowed.
24. Ground No. 4 is alternative argument which has already been dealt for and no separate adjudication is required.
25. In the result, assessee's appeal in ITA No. 1267/Mum/2013 for A.Y. 2008-09 is allowed.
26. In ITA No. 1268/Mum/2013 for A.Y. 2009-10, the following grounds have been raised by the assessee:-
"BECAUSE, ld. CIT(A) has erred in law and on facts in upholding the estimated disallowance of interest u/s.36(l)(iii) on loans amounting to Rs.2,67,00,OOOI- and directing the AO to recalculate the same ignoring the fact that the advances were made for business purpose and should not be considered for interest disallowance.
WITHOUT PREJUDICE TO THE ABOVE
2. BECAUSE, ld. CIT(A) has erred in not appreciating that even if the above expense is disallowable, the same ought to be reduced from the WIP instead of making a separate addition.
27. It has been admitted by both parties that this issue is similar to ground No. 1 raised by the assessee in appeal for A.Y. 2008-09, except for the fact that the assessee had given advance of Rs. 2,72,50,000/- to three more 17 ITA 1267,2174,1268& 2175/Mum/13 parties, other than M/s Gahlot Constructions and M/s konark Enterprises. The details of such advances are as under:-
SN Particular Date Amount (Rs.)
1 Gahlot Constructions 18/06/2007 32,00,000/-
2 Konark Enterprises 14/08/2007 50,00,000/-
3 Raja Mirani 05/08/2008 50,00,000/-
30/08/2008 25,00,000/-
03/08/2008 15,00,000/-
11/10/2008 15,00,000/-
29/10/2008 15,00,000/-
Total 1,20,00,000/-
4 Ramesh L. Bhanushali 16/12/2008 63,00,000/-
23/01/2009 2,00,000/-
As regards the loan/advance given to M/s Konark Enterprises and M/s Gahlot Constructions, the same is coming from earlier years, therefore, the finding given therein will apply mutatis-mutandis in this year also. As regards the advance given to Raja Mirani, the same was given for the purchase of plot of land at Panvel which was auctioned by the Court Receiver after reference to Debt Recovery Tribunal. The said purchase of plot was made by M/s Gajra Group through its nominee Shri Raja Ratilal Mirani. The deed of conveyance in respect of this property was also executed on 3-6-2008. Later on, the assessee firm entered into a joint development agreement with Raja Ratilal Mirani and, therefore, the same was for business purpose. Similarly, loan given to other two persons were also for the purpose of business and same argument has been placed before us that it is out of surplus funds. Lastly, it has been contended that the interest debited to the WIP, therefore, no disallowance can be made in this year.
28. After hearing both the parties, we find that so far as the advance/loan given to Raja Mirani, the same appears to be purely for business purpose, there're, no disallowance is called for. Regarding other two parties also, it is seen that the assesee had interest free funds in the capital account which 18 ITA 1267,2174,1268& 2175/Mum/13 was at Rs. 3,52,58,440/-, whereas the advance given to these two parties comes to Rs. 70 lakhs and if other advances are also taken into consideration, then the same is approximately Rs. 2.72 crores. Thus in view of the decision in the case of Reliance Utilities & Power Ltd. (supra), no disallowance of interest can be made on the ground that interest free funds have been given for the purpose of business. Thus, the disallowance of interest on proportionate basis is deleted.
29. Lastly, in any case, no disallowance can be made to the income of the assessee in this year as the assessee had debited the said expenses to the WIP and any disallowance is made, then it will go to reduce the WIP. Hence, no addition can be made on this ground also.
30. In the result, both the appeals of the assessee are allowed, whereas both the appeals of the Revenue are dismissed.
Order pronounced in the open court on 15th May, 2015.
आदे श क घोषणा खल ु े #यायालय म% &दनांकः 15-05-2015 को क गई ।
Sd/- sd/-
(G.S. PANNU) (AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
मुंबई Mumbai; &दनांक Dated 15-05-2015
[
व.5न.स./ R.K. , Sr. PS
19 ITA 1267,2174,1268& 2175/Mum/13
आदे श क! " त$ल%प अ&े%षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. आयकर आयु6त(अपील) / The CIT(A) -4,, Mumbai
4. आयकर आयु6त / CIT -3, Mumbai
5. 9वभागीय 5त5न;ध, आयकर अपील य अ;धकरण, मुंबई / DR, ITAT, Mumbai A Bench
6. गाड? फाईल / Guard file.
ु ार/ BY ORDER, आदे शानस स या9पत 5त //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai