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2020 (1) TMI 1112 - AT - Income TaxEstimated gross profit at 15% of deemed sales of commercial space - HELD THAT - Matter requires re-consideration at the level of the Ld. CIT(A). A.O. had discussed the issue in detail and has given a specific finding of fact how the case of assessee was distinguishable from A.Y. 2007-2008. The Ld. CIT(A) did not discuss any of the fact brought out by the A.O. in the impugned order and merely followed assessment order for the A.Y. 2007-2008 for the purpose of deleting the addition. Order for the A.Y. 2007-2008 under section 143(3) is placed on record which is silent with regard to matter in issue. No reasons for decision have been mentioned in the assessment order. Therefore, factual finding shall have to be given by the Ld. CIT(A) while deleting the matter in issue. Though the Ld. CIT(A) may also taken into consideration the facts stated in the A.Y. 2007-2008, but, shall have to give specific finding of fact while deciding the addition on the issue. Both the parties, therefore, rightly suggested that the matter may be remanded to the file of Ld. CIT(A) for decision afresh, as per Law. In this view of the matter, we set aside the impugned order on this issue and restore the matter in issue to the file of Ld. CIT(A) with a direction to re-decide the same. Disallowance of expenses incurred on account of project and construction expenses - HELD THAT - Admittedly, the assessee is engaged in the business of developing and promoting commercial complexes. The assessee explained that it is under obligation to make minor/major modification to suit the convenience of the lessee. Therefore, fitment charges are incurred for better occupancy by the customers. Since the cost of construction is part of stock-in-trade and income have been offered accordingly, therefore, if the fitment charges are incurred for leased-out premises, the same would be revenue in nature. No new capital came into existence and no such finding have been given by the A.O. Therefore, considering the nature of business of assessee, CIT(A) correctly deleted the addition because the expenditure is related to the business income of the assessee. Ground No.2 of the appeal of the Revenue is dismissed. Disallowance of interest - disallowance has been made on proportionate basis invoking the provisions of Section 36(1)(iii) - HELD THAT - It is a fact that substantial advance were given in preceding assessment year which have reduced in assessment year under appeal. The assessment in preceding A.Y. 2007-2008 have been made under section 143(3) in which no disallowance out of interest have been made. Since in assessment year under appeal, the advance have reduced substantially and that assessee has sufficient funds, therefore, no such disallowance could be made against the assessee. The issue is, therefore, covered by Judgment of the Hon ble Supreme Court in the case of Reliance Industries Ltd., 2019 (1) TMI 757 - SUPREME COURT . Further, A.O. has not proved any nexus with interest free funds given to sister concern out of borrowed funds. Therefore, considering the totality of the facts and circumstances of the case, we are of the view that the Ld. CIT(A) correctly deleted the addition. This ground of appeal of Revenue is dismissed.
Issues:
1. Addition of estimated gross profit on deemed sales of commercial space. 2. Disallowance of expenses incurred on project and construction expenses. 3. Disallowance of interest paid. Issue 1: Addition of Estimated Gross Profit on Deemed Sales The Revenue challenged the deletion of an addition of ?2,18,61,518 made by the Assessing Officer (A.O.) on account of estimated gross profit at 15% of deemed sales of commercial space. The A.O. added this amount based on an agreement dated 31.03.2007, considering it as an anti-dated document. The assessee argued that the sale to M/s. Bansal Corporation Ltd. was genuine and had been accepted in the previous assessment year. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, but the Income Tax Appellate Tribunal (ITAT) found that the matter needed reconsideration at the CIT(A) level due to lack of discussion on relevant facts. The ITAT remanded the issue back to the CIT(A) for a fresh decision, emphasizing the need for specific factual findings. Issue 2: Disallowance of Expenses on Project and Construction The Revenue contested the deletion of an addition of ?47 lakhs made by the A.O. for disallowance of expenses on project and construction. The A.O. treated these expenses as capital in nature, but the assessee argued that they were revenue expenses related to the business of developing commercial complexes. The CIT(A) accepted the assessee's contention, highlighting that the expenses were revenue in nature as they were related to the stock-in-trade of the business. The ITAT upheld the CIT(A)'s decision, emphasizing that the nature of the business justified treating the expenses as revenue expenditure. Issue 3: Disallowance of Interest The Revenue challenged the deletion of an addition of ?86,92,045 on account of disallowance of interest. The A.O. disallowed a proportionate amount of interest paid by the assessee, citing Section 36(1)(iii) of the Income Tax Act. The assessee demonstrated that the borrowed funds were not used for interest-free advances to sister concerns, and the CIT(A) deleted the addition. The ITAT upheld the CIT(A)'s decision, noting that the assessee had sufficient funds and no nexus was established between interest-free advances and borrowed funds. The ITAT dismissed the Revenue's appeal, citing the precedent set by the Supreme Court in similar cases. In conclusion, the ITAT partially allowed the Department's appeal for statistical purposes, remanding one issue back to the CIT(A) for reconsideration while upholding the CIT(A)'s decisions on the other issues based on the facts and circumstances presented.
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