1998 (9) TMI 660 - AT - Income Tax

Summary

Issues:
- Disallowance of liability for provision of cost of construction of building
- Addition made under section 69 of the Income-tax Act
- Addition on account of interest not charged by assessee

Issue 1: Disallowance of liability for provision of cost of construction of building:
The dispute revolved around the liability claimed by the assessee for the estimated cost of constructing flats for the owners as per an agreement. The Assessing Officer disallowed the liability deduction for the assessment year 1989-90, arguing that the liability accrued in the previous assessment year. However, the CIT(A) allowed a reduced liability amount of Rs. 23,73,685 out of the claimed Rs. 30,13,200. The ITAT Mumbai upheld the CIT(A)'s decision, emphasizing that the liability was directly linked to the income earned by the assessee from selling flats in the same assessment year. The ITAT concluded that the liability had to be computed and allowed in the assessment year 1989-90, rejecting the Assessing Officer's stance that the liability accrued on the date of the agreement.

Issue 2: Addition made under section 69 of the Income-tax Act:
The revenue challenged the deletion of Rs. 2 lakhs added under section 69 for unexplained investment in construction by the assessee. The ITAT Mumbai found no justification for the addition, noting that the assessee, a significant contractor, had reliable entries in the books of account supporting the investments made. The Valuation Officer's estimate-based addition was deemed unwarranted, and the CIT(A)'s decision to delete the addition was upheld.

Issue 3: Addition on account of interest not charged by assessee:
The revenue contested the deletion of Rs. 75,000 added for interest not charged by the assessee from certain parties. The ITAT Mumbai found that the revenue authorities did not adequately address all relevant aspects of the issue, including whether interest was waived before accruing to the assessee or as a business expediency measure. Due to insufficient information and unclear details, the ITAT set aside the previous decisions and remanded the issue to the Assessing Officer for a fresh finding in accordance with the law.

In conclusion, the ITAT Mumbai dismissed the revenue's appeal while partially allowing the assessee's appeal, settling the disputes related to liability deduction, unexplained investment addition, and interest charged by the assessee.