2015 (4) TMI 833 - HC - Income Tax

Bogus expenses - Indirect expenses including interest on Reliance Capital loan - ITAT deleted the addition - Held that - CIT(A) has elaborately discussed the issue and has recorded that the assessee was involved in the business of sub-letting of properties, and during the relevant year, it had taken 45 properties on rent and paid ₹ 49.20 lacs, and while on subletting he received ₹ 56.24 lacs resulting into net surplus of rent shown as business income of ₹ 7.04 lacs. Assessee has utilized ₹ 47.60 lacs was earned as rent and shown under the head income from house property . The balance amount of ₹ 114.34 lacs was claimed by the assessee to have been utilized for business of construction. The CIT(A) has further recorded that this fund flow has substance to slow clear nexus of utilization of borrowed fund for earning income in the form of interest, rent income and business income of construction, and has paid TDS on the interest payment wherever applicable. There being no material before us to controvert these findings of the CIT(A), we hold that there is no mistake in the order of the CIT(A) in deciding the issue in favour of the assessee, and accordingly, we hold that it could not be proved by the Revenue that the assessee s expenditure were bogus or not incurred for business construction - Decided in favour of assessee. Valuation of work-in-progress - ITAT deleted the addition - Held that - There is no material before us to reject the valuation of work-in-progress which was also supported by certificate of structural engineer, Shri J.P. Shah. In these facts of the case, we hold that there is no mistake in the order of the AO to accept the valuation of closing work-in-progress as certified by the structural engineer in his certificate, and in deleting the addition, and accordingly, the ground of the Revenue is dismissed. We are in complete agreement with the view taken by the Tribunal as well as the learned CIT(A) in deleting the addition - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of indirect expenses and interest on loan claimed by the assessee.
2. Addition of difference in valuation of closing work in progress.

Analysis:
Issue 1: Disallowance of Indirect Expenses and Interest on Loan
The assessee, a civil engineer engaged in construction activities, filed an income tax return for A.Y. 2009-2010 declaring total income. The Assessing Officer disallowed indirect expenses of &8377; 56,04,681, including interest on a Reliance Capital Bond, and the claimed work in progress amount. The CIT(A) allowed the appeal, deleting the additions. The Tribunal upheld this decision, stating that the assessee utilized funds for business purposes, paid TDS on interest income, and had a clear nexus of fund utilization for business activities. The Revenue's appeal was dismissed as there was no evidence to prove the expenses were bogus or not incurred for business purposes.

Issue 2: Addition of Difference in Valuation of Work in Progress
The Assessing Officer added &8377; 73,48,000 for the difference in valuation of closing work in progress, rejecting the engineer's certificate. However, the AO did not reject the books of account or refer the matter to the DVO. The CIT(A) and Tribunal both held that the AO's estimation was unjustified as the engineer's certificate was reliable, and the project was completed with declared profits and taxes paid. The Tribunal dismissed the Revenue's appeal, stating there was no reason to reject the valuation of work in progress supported by the engineer's certificate. The Court agreed with this view, leading to the dismissal of the appeal as no substantial question of law arose.

In conclusion, the Court upheld the decisions of the CIT(A) and Tribunal, dismissing the Revenue's appeal as no interference was warranted with the impugned judgment and order.