9911796707
TMI Blog2014 (1) TMI 743X X X X Extracts X X X X X X X X Extracts X X X X ..... at:- The submissions of the assessee require examination by the Assessing Officer in the light of what transpired in the assessment for assessment year 2004-05 in respect of the reversal entry shown in that year - As far as this assessment year is concerned these expenses were connected with the business of the assessee and had to be allowed as deduction - The estimate of expenses to be incurred for the project Ashirward had to be allowed as deduction because the income from the said project was declared by the assessee in the previous year – also, the assessee had an obligation to pay 15 lacs to the land owners and also provide alternate accommodation to the tenants of the property which was to be developed by the assessee - These expenses were legitimate business expenses which are to be allowed as deduction - these expenses were ultimately not to be incurred by the Assessee – Thus, if the above expenses are allowed as deduction the reversal entry, if it is not properly explained will be income of AY 04-05 – order of the CIT(A) set aside and the matter remitted back to the AO to examine on the relevant reversal entries in AY 04-05. Disallowance made out of site expenses – Expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... – Thus, the order of the CIT(A) upheld – Decided against Revenue. Deletion made u/s 40A(2)(b) f the Act – Excessive Interest paid – Held that:- Loans borrowed from outsiders were in majority of case at the rate of interest including brokerage ranging 18% to 27% - Thus, average rate of interest worked out to more than 18% - Ahuja Properties borrowed funds from outsiders and has paid interest ranging from 15% to 21% - it has incurred expenses for maintaining the loans and after reducing the payment of interest to outsiders, has shown some profit earning on financing business and offered the same for tax and paid tax – The decision in CIT vs Amrit Soap C. [2008 (11) TMI 71 - PUNJAB AND HARYANA HIGH COURT] followed - The Assessee is a loss making company and hence, there is no avoidance of tax - In such circumstances no disallowance can be made by invoking the provisions of Sec.40A(2)(b) of the Act – Decided against Revenue. Deletion made on account of Fitness equipment and door cameras – Construction cost to be bear by Assessee – Held that:- The expenditure was incurred by the Assessee in the course of its business - The AO has not doubted the genuineness of expenses - Fitness equipm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee filed a return of income for A.Y 2003-04 declaring a loss of ₹ 2,94,95,379/-. It is not in dispute that the assessee follows project completion method of accounting for its revenue in respect of the various projects that had undertaken to construct/developed. In the profit and loss account the assessee has shown sales in respect of two of its projects, viz. Ashirwad CHSL and Vijaydeep CHSL. The other on going projects are those of Peoples Cosmopolitan CHSL, Ambercfoft CHSL, Ann Abode CHSL, Chardham CHSL and Seeta Geeta CHSL. These projects are reflected in the balance sheet as work in progress. 4. In the course of assessment proceedings the Assessing Officer noticed that the assessee had borrowed funds on which it paid interest and which was claimed as expenses in the P and L Account. The Assessing Officer also noticed that the assessee had given interest free advances to its sister concern and others. The Assessing Officer therefore, called upon the assessee to explain as to why proportionate interest debited in the P and L Account should not be disallowed on the ground that borrowed funds on which interest paid were not utilized for the purpose of business but we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200,000.00 SARANGA AGARWAL 3,463,451.00 SKYLINE CONSTRUCTIONS CO. 4,758,120.00 VINOD PUNJABI 600,000.00 WELDONSPARES CORPORATION 1,800,000.00 OTHERS 1,794,166.00 TOTAL (B) 25,751,321.00 Total (A) +(B) 41,648,575.65 7. The admitted facts with regard to availability of interest free funds available with the assessee as on 31/3/2003 is as follows: AHUJA PLATINUM PROPERTIES PVT. LTD. INTEREST FREE LOANS AND ADVANCES (LIABILITIES) AS ON 31ST MAR. 2003 PARTICULARS CLOSING AMT. RS. AVERAGE AMT. RS. GROUP CO'S/ASSOCIATES GOPAL CONSULTANCY SERVICES P. LTD 12,321,027.88 4,108,439.00 AHUJA CREATIVE CONSTRUCTIONS PVT. LTD. 41,820.00 - GOPAL B AHUJA 15,914,738.54 129,685.00 JAGDISH B AHUJA 3,926,289.30 64,542.00 KEEPSADE PROPERTIES PVT. LTD 70,499,234.24 800,729.00 OTHERS ARUN KESWANI 25,000.00 - BHAGWAN DAS ADANI 5,400,000.00 5,400,000.00 KARAN SINGH 300,000.00 101,918.00 PARESH AHUJA AND MANISH AHUJA 3,900,000.00 3,900,000.00 KISHAN KEWLANI 3,300,000.00 3,166,301.00 HU NAGPAL 2,049,000.00 1,329,822.00 MAHESH NAGPAL 2,802,950.00 1,535,024.00 BHAVNA NAGPAL 1,302,950.00 856,942.00 AKRAND JOSHI 100,000.00 16,438.00 SURESH AHUJA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding amount in these accounts takes character of principal amount of loan on which no interest is charged, hence, disallowance out of interest was proper. 3. With respect to B, the CIT(A) found that the same was in the nature of loan or advance and disallowance of interest. The Assessee pleaded that the sum represented loss of the erstwhile firm debited in the partner's capital account and therefore it cannot be said to be loan or advance. The CIT(A) therefore upheld the disallowance. 4. With respect to C above, the CIT(A) accepted the plea of the Assessee that the said sum is not loan or advance but profit receivable in project for which J/v. was passed. The disallowance of interest to this extend was deleted by the CIT(A). 5. With respect to DandE above nexus of interest free funds advanced to sister concerns out of interest free funds received was not established and therefore, he held that interest bearing funds were used for nonbusiness purposes. He therefore upheld the disallowance of interest to that extent. 9. Aggrieved by the order of the CIT(A) sustaining the disallowance of interest expenses to the extent of ₹ 52,02,322/- the assessee has raised Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Reliance Power Utilities and Power Ltd. (supra) has been consistently followed by the various Benches of the ITAT in the following orders DCIT vs. UK Paints (India) Ltd. 4 ITR (Trib) 455(Del) - Madhu Industries Ltd. ITO 132 TTJ 233 (Ahd) - Manohar Dattatraya Sirsavkar vs. ITO, ITA No. 6154/M/09, A.Y. 2006-07, Bench 'G' order dated 17/9/10. Accelerated Freeze Drying Co. Ltd. vs. DCIT (2009) 180 Taxman 68 (Coch)(mag) 11. As far as the grievance projected by the revenue in its appeal is concerned the sum of ₹ 25,70,473/- which was excess withdrawal by the partners of the firm Ahuja Platinum, which later on was converted into a Private Limited Company, which is the assessee in this appeal. The CIT(A) has held that this withdrawal will only go to deplete the business funds and cannot be treated as loans or advances. Without going into this aspect, we are of the view that in the light of the availability of sufficient interest free funds this disallowance was also not proper and was rightly deleted by the CIT(A). 12. The ld. Counsel for the assessee also addressed arguments with regard to individual interest free loans which were considered for making proportion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per clause 6 and 7 of the development agreement as earnest deposit. As far as reversal of this sum in the following assessment year is concerned, the assessee explained that in the immediately following year i.e. the accounting year 2003-04 the assessee in fact incurred further expenditure on Vijaydeep Project on behalf of the owners of the land. These expenses aggregating to ₹ 55,90,072/- were not recoverable, the aggregate of the expenditure of ₹ 55,90,072/- was sought to be adjusted hoping that the equal amount would be recoverable from the owner. It was in this view of the matter that the said expenditure was adjusted by way the amounts paid to the owner as Earnest Money Deposit. The personnel who used to write the accounts however used the wording as "Reversal" seeing the identical amount debited in the cost of construction in the earlier year. It was submitted that there was no reversal of debit from the cost of land as visualized by the A.O, but a reduction of the further cost incurred by the assessee on the Vijaydeep project in the following year. It was submitted that that the entries of so called reversal did not reduce the cost of land as appearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curred some expenditure hoping that equal amount will be recoverable from the owner. The expenditure u/s. 37 is to be allowed when it is incurred wholly and exclusively for the purpose of business and it is not in capital nature. It is not understandable as to how come the appellant has debited expenditure which himself is recognizing that it is recoverable from other parties. I am not able to accept the argument of the appellant that reversal of entry represented profit to be taken u/s. 41(2) by way of recovery of amount from them. Neither before the AO nor before CIT(A) the appellant has laid any credible evidence to say that the expenditure debited to the P and L Account under the provision has crystalised during the previous year relevant to assessment year and it is expenditure wholly and exclusively pertaining to the appellant. In fact, the appellant neither before the AO nor before the CIT(A) has given a complete details regarding as to how the appellant has incurred such expenditure for the purpose of business." 18. Aggrieved by the order of CIT(A) assessee raised Ground No.2 before the Tribunal. 19. We have heard the rival submission. As far as Provision for expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal entry shown in that year. As far as this assessment year is concerned these expenses were connected with the business of the assessee and had to be allowed as deduction. The estimate of expenses to be incurred for the project Ashirward had to be allowed as deduction because the income from the said project was declared by the assessee in the previous year. Similarly the assessee had an obligation to pay ₹ 15 lacs to the land owners and also provide alternate accommodation to the tenants of the property which was to be developed by the assessee. These expenses were, therefore, legitimate business expenses which are to be allowed as deduction. The entry with regard to reversal in A,Y 2004-05 will however have a bearing on the claim made by the Assessee in AY 03-04, if it is found that these expenses were ultimately not to be incurred by the Assessee. In such event, if the above expenses are allowed as deduction the reversal entry, if it is not properly explained will be income of AY 04-05. We therefore set aside the order of CIT(A) on this issue and direct the AO to examine the issue in the light of the conclusions on the relevant reversal entries in AY 04-05. 21. Ground N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee explained that it represented the payment made to said concern as part of its share of contribution towards cost of administrative and other charges. The assessee further explained that the assessee company alongwith the other nine sister concerns had formed a consortium vide agreement/MOU dtd. 12/12/1999 to treat M/s. Jaygopal Consultancy Services P. Ltd. as a "common pool company" which will cater all the administrative and managerial requirement of the constituent members on the basis of bearing the proportionate expenditure. In other words, "the common pool company" will provide administrative and managerial service to its constituent members and the common pool company has to recover the expenditure from its constituent members on proportionate basis of the services rendered by them. Further, it was also submitted by the assessee that the common pool company viz. M/s. Jaygopal Consultancy Services Pvt. Ltd. was functioning on the principle of mutuality on no profit no loss basis to serve the administrative and managerial requirement of the constituent members. The assessee explained that the payment made at ₹ 1,23,21,028/- represented the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption which AO had in his mind. There is no legal fiction created by any authority to have such presumption under all the circumstances. The law does not put any embargo of having such "common pool company". Therefore, it is not possible to sustain the presumption of the AO. The facts are very simple that every part of expenditure incurred by common pool company in respect of administrative and managerial services provided by them to the constituent member is to be shared and reimbursed on certain mutually agreed basis i.e. in proportion of the cost of project, the question does not arise to attribute any part of expenditure individually relating to common pool company. In view of the above, I have no doubt in my mind that the entire expenditure claimed by the appellant at ₹ 1,23,21,028/- is allowable deduction within the four corner of law and no part of expenditure can be disallowed u/s. 40A(2)(b). The AO has not given any finding that a part of expenditure was excessive or unreasonable having regard to the market value of services rendered u/s. 40A(2)(b). Further , I also find that absolutely, there is no scope for applying the provision of Sec. 40A (2)(b) on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vijaydeep and Ashirwad. The AO noted that the total cost of the marble shown in Vijaydeep was at ₹ 1,42,10,989/- which worked out the marble cost per sq.ft. at ₹ 613/-. This working of marble per sq. ft. at ₹ 613/- compelled the AO to ask for the explanation of the assessee as to why the provision of Sec.40A(2)(b) should not be invoked in view of the fact that the rates of marble cost consumed per sq. ft. stands higher than the normal market rate. Thereafter, the assessee replied to the AO vide letter dtd. 6/3/2006 explaining the cost of marble consumed per sq. ft. in Vijaydeep project. The assessee submitted that the cost of marble show at vijaydeep at ₹ 1,42,10,989/- represented two components. According to the assessee, the first component was the actual cost of marble which was incurred for laying down the marble in the Vijaydeep project which amounted only ₹ 72,98,550/-. The other component of marble cost was ₹ 69,12,439/- which remained unutilized in the form of stock included in the WIP carried forward. 33. Marble worth ₹ 69,12,439/-: The assessee further submitted that the impugned cost of marble at ₹ 69,12,439/- represented ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of ₹ 15,06,050/- and ₹ 12,60,208/- made by the Assessing Officer by invoking the provisions of section 40A(2)(b) of the Income Tax Act, 1961 (the Act) is concerned the Assessing Officer applied the rate of 250/- per sq.ft. as general market rate. As against the assessee had paid ₹ 315/- per sq.ft. for laying marble floor in the case of Vijaydeep project and ₹ 310/- per sq. ft. in the case of Ashirwad project. The assessee pointed out that a sum of ₹ 250/- per sq. ft. taken by the Assessing Officer as market price was arbitrary. The assessee pointed out that depending upon the quality of marble the rates can vary between ₹ 150 per sq.ft. to ₹ 700/- per sq.ft. The assessee also pointed out that the very same sister concern namely M/s. Topaim Properties Pvt. Ltd. had laid marble stones at Hinduja Hospital and Research Centre at ₹ 700 per sq. ft. The assessee also filed confirmation of Topaim Properties Pvt. Ltd. regarding the quality of marbles laid in the projects Vijaydeep and Ashirward. 36. On consideration of the above confirmations the CIT(A) deleted the addition made by the Assessing Officer holding as follows: "4.2.2 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 563.99 Cl. WIP as on 31.3.03 73,497,920.00 From the above details, it may be seen that the other construction cost stands at ₹ 2,17,36,140/- and laying cost of the marble by M/s. Topaim Properties P. Ltd. is at ₹ 72,98,550/-. These figures are not disputed by the AO. Now the question arises whether the AO's presumption of non-inclusion of closing stock at ₹ 69,12,439/- in the opening as well as closing WIP is correct or not. The finding of the AO is based on his observation that the appellant has not maintained any separate stock register and cost of the marble does not find place therein. Further, the AO has also observed that since the project Vijaydeep is completed the figure of WIP should not consist of unused material. AO has virtually proceeded on the presumption that the opening WIP as on 1/4/2002 as well as closing stock as on 31/3/2003 did not have the element of unused marble worth ₹ 69,12,439/-. If we look at the finding of the AO, I find that the AO had some suspicion and hunch in his mind regarding the inclusion of unused marble to have included in WIP or not because the WIP should not have an element of unused material and non-maintenan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm while determining the income. It was held in case of Kedarnath Jute Mfg. Co. Ltd. vs. CIT 82 ITR 363 (SC) that accounting by a party is not conclusive. It is only question of representing the antecedent of a particular entry under the narration WIP or closing stock but that itself does not make any substantial difference in its implication on profit as both find its place on credit side only. The accounting implication in both situation remains the same. Non-maintenance of stock register also cannot distort the happening accounting implication. As far as relevant assessment year is concerned, the major chunk of closing WIP has got the contribution of opening WIP at ₹ 7,23,13,793/- which is supposed to have the element of value unutilized marble stock by virtue of having got the purchase of marble on 15/3/2002 and 25/3/2002 unless proved otherwise. The AO cannot proceed to make addition only on presumption without any factual support. If the AO has got his finding that the alleged marble stock is missing both in opening WIP as on 1//4/2002 and closing WIP as on 31/3/2003 as well the correct legal course would have been to analyse the closing WIP shown by the erstwhile firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marbles by the erstwhile firm, it was not intended that the said marble would not be used in the project and different marbles would be used and hence, as at 31/3/2002, in the books of erstwhile firm, it was correctly reflected as part of construction cost and hence, part of WIP. No addition could be made on presumption without the AO proving that the same was not forming part of WIP. Further, the assessee already sold back the said unused marbles to Topaim in A.Y 2006- 07 and the same is also accepted by the department in the scrutiny assessment for that year. Thus it proves that the marbles formed part of closing WIP in the books of the assessee company. In view of the above we are of the view that the order of the CIT(A) deserves to be upheld. We accordingly dismiss the Ground No.2 raised by the revenue. 41. Ground No.3 raised by the revenue reads as follows: "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in not confirming the disallowance of ₹ 32,83,710/- made u/s. 40A(2)(b) on account of excessive interest paid to M/s. Ahuja Properties." 42. The assessee paid interest on loan to sister concern Ahuja Properties of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn some profit earning on financing business and offered the same for tax and paid tax. The Assessee is a loss making company and hence, there is no avoidance of tax. In such circumstances no disallowance can be made by invoking the provisions of Sec.40A(2)(b) of the Act as laid down in the following decisions CIT vs Amrit Soap C. 308 ITR 287 (PandH) and DCIT vs. J.H. Finvest (P) Ltd. 21 ITR (Trib) 620 (Del). We therefore find no grounds to interfere with the order of the CIT(A) and dismiss ground No.3 raised by the Revenue. 45. Ground No.4 has already been decided while deciding Ground No.1 raised by the assessee. For the reasons stated therein this ground of appeal of the revenue is dismissed. 46. Ground No.5 raised by the revenue reads as follows: "5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the deleting the disallowing of ₹ 5,22,696/- on account of fitness equipment and door cameras without appreciating the fact that as per MOU, in Ashirwad project, the assessee was to bear only construction cost. 47. The AO disallowed expenses incurred by the Assessee on account of fitness equipment and door cameras of S ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
