2021 (7) TMI 757 - AT - Income Tax

Addition on account of construction loss claimed - Matching with Revenue - AO rejected the contention of the assessee i.e. the loss claimed in the year under consideration was offered to tax in the subsequent year when bungalows constructed by the assessee got regularized by the competent authority, on the reasoning that the loss was claimed in the year under consideration which is not permissible under the provisions - HELD THAT - Admittedly, the construction loss claimed by the assessee in the year under consideration was offered to tax in the subsequent assessment years. This finding of the CIT (A) has not been controverted by the DR at the time of hearing. Thus it can be inferred that, if the amount of loss claimed by the assessee in the year under consideration is disallowed then such disallowance/addition will lead to the double addition which is not desirable under the provisions of law. Assuming, the contention/finding of the AO is correct that impugned loss is not allowable for deduction in the year under consideration, then it is incumbent upon the AO to reduce the amount of income which was offered to tax by the assessee in the subsequent assessment year. If it is not done so, then the assessee will suffer to tax 2 times with respect to the same amount in 2 different assessment years which is not desirable under the provisions of law. Accordingly in the absence of any adverse finding by the AO for the adjustment of the construction loss claimed by the assessee in the year under consideration with the income offered in the subsequent year, we are not convinced with the order of the AO. Accordingly, we do not find any infirmity in the order of the learned CIT (A). Hence, we uphold the same. Thus the ground of appeal of the Revenue is dismissed.

Summary

Issues:
1. Disallowance of construction loss claimed by the assessee under s. 37 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Disallowance of Construction Loss
The Revenue raised grounds challenging the deletion of the addition of ?1,91,25,000 made on account of construction loss claimed by the assessee. The facts revealed that the assessee, a partnership firm engaged in real estate business, debited construction loss for 5 bungalows due to lack of AUDA approval, facing a notice for demolition. However, the bungalows were regularized later by the authority. The AO disallowed the claimed loss, citing it was offered to tax in subsequent years, leading to double taxation. The CIT (A) allowed the deduction, considering the loss booked as per Accounting Standards, leading to the Revenue's appeal.

The CIT (A) observed that the loss was recognized as per prudent accounting principles due to uncertainty and subsequent regularization of the bungalows. The Revenue contended that disallowing the loss would result in double taxation, supported by scrutiny assessments in later years. The Tribunal noted that disallowing the claimed loss would lead to undesirable double additions in different assessment years, emphasizing the need for adjusting the subsequent year's income. As the AO failed to address this adjustment, the Tribunal upheld the CIT (A)'s decision, dismissing the Revenue's appeal.

In the Cross Objection, the assessee supported the CIT (A)'s decision, emphasizing the adherence to Accounting Standards and subsequent income recognition without claiming expenditure. The Tribunal found the Cross Objection supporting the CIT (A)'s order, leading to its dismissal as infructuous.

In conclusion, the Tribunal dismissed the Revenue's appeal and the assessee's Cross Objection, upholding the CIT (A)'s decision regarding the disallowance of construction loss claimed by the assessee.

Order pronounced in the Court on 09/04/2021 at Ahmedabad.