2021 (1) TMI 910 - AT - Income Tax

Not allowing business expenditure incurred against the business income - A.O not allowing cost of construction against the business income - appellant prays that cost of construction to be allowed against the amount received on issue of debentures - CIT(A) had refrained from adjudicating the aforesaid claim of the assessee, for the reason, that he held a conviction that now when he had vacated the treating of the proceeds received on issue of shares/debentures of ₹ 4.20 crores as the assessee s income from business by the A.O, therefore, adjudication of the aforesaid alternative ground raised by the assessee would not be necessary. HELD THAT - In our considered view, the piecemeal disposal of the appeal by the first Appellate Authority cannot be accepted. As per the settled position of law, the appellate authorities are obligated to dispose off all the grounds of appeal raised by the appellant before them so that multiplicity of litigation may be avoided. There can also be no escape on the part of the CIT(A) from discharging the statutory obligation cast upon him to deal with and dispose off all the grounds of appeal on the basis of which the impugned order has been contested by the assessee before him. We, thus, in all fairness and in the interest of justice, and in order to avoid multiplicity of litigation are of the considered view that the matter requires to be revisited by the CIT(A) for adjudicating the aforesaid alternative ground of appeal which was raised by the assessee in unequivocal terms before him, but had not been adjudicated by him - matter requires to be restored to the file of the CIT(A), with a direction to dispose off the aforesaid alternative ground of appeal that was raised by the assessee before him.

Summary

Issues Involved:
1. Whether the receipt of debenture money from M/s. International Export and Estate Agency (IEEA) amounts to sale consideration of the parking space.
2. Whether the accounting treatment of debenture money by the assessee has been consistent and accepted by the department in previous years.
3. Whether the principle of consistency should be applied in the present case.
4. Whether the CIT(A) should adjudicate the alternative ground raised by the assessee regarding the cost of construction against the amount treated as business income.

Detailed Analysis:

1. Sale Consideration of Parking Space:
The primary issue is whether the receipt of debenture money from IEEA should be treated as the sale consideration for parking space. The Assessing Officer (A.O) observed that the assessee had issued debentures equivalent to the value of the sale consideration of the units/houses sold, treating the debenture money as a liability rather than sales income. The A.O contended that this method was adopted to avoid income tax and stamp duty, thus classifying the transaction as a sham. However, the CIT(A) noted that the debentures were issued with specific terms and conditions, and the right to occupy the parking space was given to IEEA without transferring ownership. The CIT(A) concluded that the debenture money did not constitute a revenue receipt subject to tax, as the ownership of the parking spaces remained with the assessee.

2. Consistency in Accounting Treatment:
The CIT(A) observed that the department had accepted the accounting treatment of debenture money since A.Y. 2001-02, where such receipts were not considered as sales proceeds of flats or parking spaces. The CIT(A) emphasized that the assessee's method of issuing debentures and treating them as liabilities had been consistently accepted in previous assessments, reinforcing the assessee's claim that the debenture money was not income from sales.

3. Principle of Consistency:
The CIT(A) applied the principle of consistency, citing judicial precedents that mandate maintaining consistency in tax treatment across different assessment years when the facts remain identical. The CIT(A) referenced decisions such as Radhasoami Satsang and others to support this principle, asserting that changing the treatment of debenture money in A.Y. 2011-12 would contravene this principle. The CIT(A) thus vacated the A.O's addition, emphasizing that the debenture money should not be treated as sales income.

4. Alternative Ground on Cost of Construction:
The assessee raised an alternative ground requesting that if the debenture money was treated as business income, the corresponding cost of construction should be allowed as a deduction. The CIT(A) did not adjudicate this ground, as he vacated the primary addition. However, the Tribunal noted that the piecemeal disposal of the appeal was not acceptable and emphasized the need for the CIT(A) to adjudicate all grounds raised to avoid multiplicity of litigation. The Tribunal thus restored the matter to the CIT(A) to adjudicate the alternative ground regarding the cost of construction.

Conclusion:
The Tribunal restored the appeal to the CIT(A) for the limited purpose of adjudicating the alternative ground raised by the assessee. The CIT(A) is directed to dispose of this ground to ensure a comprehensive resolution of the issues involved. The Tribunal refrained from commenting on the primary issue of treating the debenture proceeds as business income, focusing instead on ensuring the completeness of the appellate process.