K N POKAR CONSTRUCTION PVT LTD,MUMBAI vs. ITO-14(2)(1) ( PREVIOUSLY 14(2)(2), MUMBAI
What did the Tribunal hold?
The Tribunal held that the CIT(A) failed to provide the assessee with an adequate opportunity of being heard and dismissed the appeal prematurely. Therefore, the order of the CIT(A) was not sustainable.
What were the facts?
The assessee, a property developer, debited stamp duty expenses and Transferable Development Rights (TDR) expenses in its profit and loss account. The Assessing Officer disallowed these as revenue expenses and also made a disallowance under Section 14A. The CIT(A) dismissed the assessee's appeal for non-prosecution.
What were the issues?
Whether the CIT(A) erred in dismissing the appeal for non-prosecution without deciding on merits, and whether stamp duty and TDR expenses are revenue or capital in nature.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
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- CIT v. Navasari Cotton and Silk Mills Ltd.27 citing135 ITR 546 · 1982 · HC
Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI KULDIP SINGH
Per : Kuldip Singh, Judicial Member:
The assessee by filing the present appeal, sought to set aside the impugned order dated 28.02.2023 passed by the National Faceless Appeal Centre(NFAC) [Commissioner of Income Tax (Appeals), Delhi] (hereinafter referred to as CIT(A)] qua the assessment year 2015-16 on the grounds inter-alia that :- “Ground No.1: The Ld. CIT(A) erred in not considering the facts of the case as enumerated in Assessment Order and consequently erred in upholding the action of A.O. We pray that the order of Ld. CIT(A) is set aside. Ground No. 2: On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the stand of the learned AO in disallowing 2 M/s. K.N. Pokar Construction Pvt. Ltd.
an amount of Rs.2,70,000/- on account of stamp duty paid by the assessee on the sale of the immovable property. The Appellant prays that the said disallowance may please be deleted. Ground No. 3: On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the stand of the learned AO in considering the Transferable Development Rights (TDR) expenses incurred by the assessee as capital expenditure and disallowed an amount of Rs.6,15,720/- being the amount incurred to regularize the additional construction made by the assessee company. The Appellant prays that the said disallowance may please be deleted. Ground No. 4: On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in confirming the stand of the learned AO disallowing the sum of Rs.1,84,301 U/S.14A r.w.r. 8D of the Act. The Appellant prays that the said disallowance may please be deleted.”
Briefly stated facts necessary for consideration and adjudication of the issues at hand are : the assessee is engaged in the business of property development. The assessee’s return of income declaring total income of Rs.63,65,810/- was subjected to scrutiny. In response to the notices issued by the Assessing Officer (AO), the assessee duly filed its submissions. The AO on verification of the profit and loss account noticed that the assessee has debited an amount of Rs.2,70,000/- on account of the stamp duty expenses under direct expenses. Declining the contention raised by the assessee the AO proceeded to hold that the claim of the assessee for payment of stamp duty expenses is not revenue in nature and thereby made addition thereof to the total income of the assessee. The AO also noticed from profit and loss account that the assessee has debited an amount of Rs.6,15,720/- on account of TDR expenses under direct expenses. Again declining the contentions raised by the assessee the AO proceeded to capitalise the payment for TDR made by the assessee as capital expenditure as the assessee is into the business of real estate. The AO also made disallowance 3 M/s. K.N. Pokar Construction Pvt. Ltd.
of Rs.1,84,301/- under section 14A read with rule 8D. The AO framed the assessment under section 143(3) of the Act.
The assessee carried the matter before the by way of filing appeal who has confirmed the addition by dismissing the appeal for want of prosecution by the assessee. Feeling aggrieved with the impugned order passed by the Ld. CIT(A) the assessee has come up before the Tribunal by way of filing present appeal.
I have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.
Bare perusal of the impugned order passed by the Ld. CIT(A) goes to prove that the assessee has not been provided with an opportunity of being heard by the Ld. CIT(A). In para 3 of the impugned order Ld. CIT(A) stated to have given three opportunities for 27.05.2021, 19.01.2021 and 17.02.2023 but mode of issuance of the notice has not been given nor it has brought on record if the notices issued were ever served upon the assessee or not. Effectively one notice appears to be issued to the assessee on 08.02.2023 to appear or file the response by 17.02.2023 i.e. within a period of 11 days which shows that the entire proceedings were carried out in a hasty manner. Notice issued for 19.01.2021 falls during the Covid period and office of Ld. CIT(A) was not supposed to be working during that period. 4 M/s. K.N. Pokar Construction Pvt. Ltd.
Ld. A.R. for the assessee stated that only legal issues are involved in this case and entire material was otherwise produced before AO and her appeal should be decided on merits and relied upon the decision of the co-ordinate bench of Tribunal in case of Krunal Industrial Estate Developers (P.) Ltd. vs. ITO (2017) 87 taxmann.com 70 (Mumbai-Trib.) on ground No.1 as to treating the amount of Rs.2,70,000/- by the assessee on account of stamp duty. The assessee has also relied upon the decision rendered by Honourable Gujarat High Court in case of CIT vs. Navsari Cotton & Silk Mills (1981) 7 Taxman 411 (Gujarat)/ (1982) 135 ITR 546 (Gujarat) in support of her argument on ground No.2 that amount spent for purchasing TDR of the last property left with the assessee to be sold is revenue expenses having no enduring benefit to the assessee.
However, I am of the considered view that when the case of the assessee has not been decided by Ld. CIT(A) on merits rather dismissed the appeal for non prosecution the order passed by Ld. CIT(A) is not sustainable and being a first appellate authority Ld. CIT(A) is required to decide the issue on merits by taking into consideration the decision rendered by co-ordinate bench of Tribunal in case of Krunal Industrial Estate Developers (P.) Ltd. (supra) and decision rendered by Honourable Gujarat High Court in case of CIT vs. Navsari Cotton & Silk Mills (Supra). To decide the issue once for all, the impugned order passed by Ld. CIT(A) is set aside and remanded back to Ld. CIT(A) to decide afresh after providing opportunity of being heard to the assessee. 5 M/s. K.N. Pokar Construction Pvt. Ltd.
Resultantly the appeal filed by the assessee is allowed.
Order pronounced in the open court on 24.08.2023.
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