SHAH CONSTRUCTION COMPANY LTD,MUMBAI vs. DY COMMISSIONER OF INCOME TAX-CENRAL CIRCLE-1(3), MUMBAI

Fact in brief is that return of income declaring total loss of Rs.447,85,926/- was filed on 24.09.2011. The assessment u/s 143(3) of the Act was completed on 29.01.2014 determining the total loss at Rs.445,75,676/-. Subsequently, the case was reopened by issuing of notice u/s 148 of the Act on 30.03.2016. The reason for reopening the case is reproduced as under The assessee was developing a single property and no other construction activity was being carried on during the period All the expenses were part of work in progress of the assessee. Therefore, that despite offering no income from business, the assessee debited various business expenses of Rs.5,09,19,578/- to its P&L A/c against the other income of Rs.55,80,000/- As there was a single project during the period and as no income was offered, the expenses should have been capitalized and taken directly to the WIP instead of allowing the same as expenses.

During the course of assessment the assessing officer noticed that assessee company was engaged in the business of construction, real estate development, builders and contractor. The assesse was asked to explain as to why the business expenses debited amounting to Rs.509,19,578/- should not be capitalised as there was only one single project and the assessee had earned only income from other sources amounting to Rs.55,80,000/-. The assesse explained vide letter dated 24.10.2016 as under:

Aggrieved, the assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee. After referring the finding given on the identical issue on similar fact in the case of the assessee itself for assessment year 2008-09.

Heard both the sides and perused the material on record. 5(i). Regarding the ground of appeal pertaining to validity of the proceedings by issuing of notice u/s 148 of the Act, the ld. CIT(A) has dismissed the appeal of the assesse for the A.Y. 2011-12 after applying the findings for AY. 2008-09 mutatis mutandis on the ground no. 1 of the appeal filed by the assessee. However, we find the facts and issues for reopening the assessment for the AY 2011-12 are different from the A.Y. 2008-09. In the A.Y. 2008-09 the case was reopened on the basis of information received from the office of DDIT(Inv.) Mumbai that the assessee had gone for one time settlement with the Bank of India by paying Rs.97,84,00,651/-. Therefore the ld. CIT(A) held in that year that there was new tangible material on record of the AO on the basis of which the re-assessment proceedings have been initiated. However, for the year under consideration A.Y. 2011-12 the AO has not reopened the assessment on the basis of any such material as evident from the reasons recorded by the AO given at para 2 of the assessment order. The AO simply mentioned that despite offering no income from business the assessee debited various expenses of Rs.509,19,578/- in the P.S.L A/c against the other income of Rs.55,80,000/- as there was a single project during the period and no income was offered therefore the expenses should have been capitalised and taken directly to the WIP instead of allowing the same as expenses.

Fact in brief is that assessment u/s 143(3) of the Act was completed on 01.03.2016. During the course of assessment the AO has made disallowance out of various expenses claimed by the assessee. The further fact of the case are discussed while adjudicating various ground of appeal filed by the assessee.

The AO noticed that assessee has claimed Rs. 5,00,000/- on account of payment of commission brokerage. On query the AO found that these amount was paid on account of arranging extension of license usage of the premises belonging to the assessee with enhanced rates to M/s Auto Wahan. In this regard, the AO observed that assessee has shown the income received from Auto Wahan on account of Licence fees under the head Income from house property but these expenses have been debited to the profit and loss account. Therefore, the AO has disallowed the claim of such expenses debited to the P.S.L A/c.

The assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.

During the course of assessment the assessing officer noticed that assessee has claimed Rs.80,267/- as conveyance expenses incurred for arbitrator pertaining to the joint venture entered into by the assessee company during the year under consideration. The AO has disallowed 50% of these expenses treating the same as personal expenses. The ld. CIT(A) has sustained the disallowance.

Heard both the side and perused the material on record. As per the Annexure placed in the paper book by the ld. Counsel it is noticed that assessee has given day to day detail of expenses incurred along with break-up of the amount and similar details were also submitted before the lower authorities which was not controverted. The AO has not brought any material on record to demonstrate that such expenses are incurred for personal purposes therefore action of the lower

During the course of assessment the AO has disallowed 50% of remaining conveyance expenses of Rs.165,237/- to the amount of Rs.82,618/- for want of proper verification.

Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assessee.

Heard both the sides and perused the material on record. We have perused the annexure wherein the assessee has given the nature and detail of expenses. Looking to the nature of expenses for want of proper verification and vouchers we consider 10% disallowance of such expenses to the amount of Rs.16,523/- is appropriate as against 50% disallowance of Rs.82,618/- made by the assessing officer. Therefore, this ground of appeal of the assesse is partly allowed.

During the course of assessment the assessing officer disallowed 50% of miscellaneous expenses to the amount of Rs.304,414/- paid in cash on the basis of self made vouchers on the ground that assesse has not furnished documentary evidences to prove that these expenses were incurred for the purpose of the business of the assessee.

Heard both the side and perused the material on record. As per annexure C of the paper book filed by the assessee detail of various miscellaneous expenses i.e advertising festival expenses, printing and statutory brokerage, water charges office expenses etc, along with break up of all these expenses were given alongwith addresses of the parties to whom these expenses were made. Since such expenses were mostly incurred in cash therefore for want of proper verification we consider that disallowance of 10% of such expenses to the amount of Rs.60,882/- as against 50% disallowance is justified. Therefore, we direct the AO to restrict the disallowance to the extent of Rs.60,882/- only. Accordingly, this ground of appeal of the assessee is partly allowed.

During the course of assessment proceedings the AO noticed that assessee has incurred motor car expenses to the amount of Rs.587,914/- in cash on the basis of self made vouchers.

Aggrieved the appeal filed the appeal before the ld. CIT(A). The ld. CIT(A) has dismissed the appeal of the assesse.

We have considered the detail of such expenses provided in the Annexure C placed in the paper book. After considering the nature of expenses which were mostly incurred in cash we restrict the disallowance to the extent of 10% of such expenses to the amount of P a g e | 11 to 864/Mum/2023 Shah Construction Company Ltd. Vs. DCIT, CC-1(3) Rs.58,791/- as against 50% disallowance made by the AO of Rs.293,957/- for want of proper verification. Therefore, this ground of appeal is partly allowed.

During the course of assessment the AO has disallowed 50% of staff welfare expenses to the amount of Rs.158,307/- out of Rs.316,615/- for want of verification. After considering the detail filed and nature of expenses provided in annexure C in the paper book we find that AO has made the disallowance at higher side, therefore, we restrict the disallowance to the extent of 10% of such expenses to the amount of Rs.31,662/- for want of proper verification as there expenses were based on self made vouchers. Therefore, this ground of appeal is partly allowed.

The AO has made disallowance at 50% of telephone expenses of Rs.65,158/- out of total expenses of Rs.130,317/- for want of verification.

After considering the nature of expenses we find that disallowance made by the AO is not justified. Therefore, we restrict the disallowance to the extent of 10% of such expenses as personal element in these expenses cannot be ruled out. Accordingly, disallowance is restricted to Rs. 13,032/-.

The Assessing Officer disallowed 50% of festival expenses of Rs.47,017/- out of Rs.94,034/- for want of proper detail and verification.

The assessee has placed detail of such expenses in the annexure C placed in the paper book. The ld. Counsel submitted that these expenses were already included in the miscellaneous expenses and the same has already been considered for disallowance by the assessing officer. Accordingly, we direct the AO not to make any disallowance as these expenses have already been included in the miscellaneous expenses. Therefore, this ground of appeal of the assessee is allowed.

During the course of assessment the AO has disallowed 50% of office expenses of Rs.114,448/- out of total expenses of Rs.228,897/- on the similar ground that these expenses are not verifiable.

The ld. Counsel explained that detail of such expenses has been provided in Annexure C placed in the paper book. These expenses has already been included in the miscellaneous expenses of Rs.608,828/- which has already been considered by the AO for disallowance. Considering the same we direct the AO to delete the said disallowance accordingly this ground of appeal of the assesse is allowed.

During the course of appellate proceedings before us the ld. Counsel referred Annexure D placed in the paper book and after referring letter of the District Collector, Mumbai the assessee explained that interest was paid for 10 plot of land at Andheri as per demand notice of the State Revenue Department and these are the revenue expenditure which are allowable. We find that neither AO nor CIT(A) has verified this claim of the assessee that these expenses were of the revenue nature as the assessee was engaged in the business of real estate development, therefore, we restore this issue to the file of the assessing officer for deciding afresh after examination of the relevant supporting documents after affording adequate opportunity to the assesse. Therefore this ground of appeal is allowed for statistical purposes.

The AO has disallowed the amount of Rs.575,179/- as prior period expenses debited to the profit and loss account. The ld. Counsel has explained from the Annexure D of the paper book that this amount was paid on account of unearned income on sale of plot in earlier years to P a g e | 14 to 864/Mum/2023 Shah Construction Company Ltd. Vs. DCIT, CC-1(3) the Government of Maharashtra as per the notice of demand of Revenue Department of Government of Maharashtra.

We consider that this claim of the assessee is also required to be examined by the AO on the basis of relevant supporting document to be furnished by the assesse whether these expenses accrued during the year under consideration or these expenses pertained to the earlier years, therefore this issue is restored to the file of AO for deciding a fresh as directed above. Therefore, this ground of appeal of the assessee is also allowed for statistical purposes.

During the course of assessment the assessing officer has disallowed an amount of Rs.48,290/- being 50% of depreciation on plant and machinery on the ground that justification for addition of Rs.209,984/- to plant and machinery was not given.

After hearing both the side and considering detail and copy of invoices placed as per annexure E of the paper book, we consider that the disallowance of depreciation on estimated basis without disproving the claim of expenses supported with relevant invoices is not justified. Therefore, we direct the AO to delete this addition of disallowance of depreciation. This ground of appeal of the assessee is allowed.

During the course of assessment the assessing officer has disallowed the claim of work in progress of Rs.31,37,488/- on the P a g e | 15 to 864/Mum/2023 Shah Construction Company Ltd. Vs. DCIT, CC-1(3) ground that genuineness of the transaction was not proved and TDS was not deducted.

After hearing of both the sides and perusal of material on record, we find that as per annexure F the assesse placed in the paper book the assessee has given the detail/break-up of work in progress along with purpose/nature of expenses/amount of expenses and TDS deducted on the payment made. The ld. Counsel submitted that such detail has been also furnished at the time of assessment proceedings. The ld. Counsel further submitted that these expenses were incurred towards supply of labour and Transportation charges for removing excavated earth and TDS was done wherever the payment exceed the prescribed limit of Rs.20,000/-. We find that AO has neither considered the relevant detail nor pointed out deficiency in the detail furnished therefore this ground of appeal of the assesse is restored to the file of the AO for deciding afresh after examination of the detail and after providing adequate opportunity to the assesse. This ground of appeal is allowed for statistical purposes.

This claim of the assessee is required verification. Therefore, this ground of appeal

During the course of assessment AO has disallowed interest expenses of Rs.56,32,981/- by treating the same as work-in-progress (capital expenses).

The ld. CIT(A) has dismissed the appeal of the assessee.

During the course of appellate proceeding before us the ld. Counsel filed paper book comprising details pertaining to nature of work-in-progress and detail of expenses shown in the WIP. The assessee explained that these expenses were incurred as interest on loan and legal and administrative expenses in connection with projects undertaken in past and these expenses have no connection at all with assessee’s project under taken at New Link road Andheri. We find that AO has not considered all these fact in his finding and also not controverted the submission made by the assessee vide letter dated 27.122016 before the assessing officer. Therefore, we restore this issue to the file of the assessing officer for deciding afresh after examination of the relevant supporting detail furnished by the assessee and after affording adequate opportunity to the assessee. Therefore, this ground of appeal of the assesse is allowed for statistical purposes.

During the course of assessment the AO has disallowed an amount of Rs.40200/- as prior period expenses.

After hearing both the side it is noticed that assessee has explained that these were the expenses pertained to the payment for municipal property tax claimed on actual payment basis u/s 43B of the Act. Considering the submission of the assessee we direct the AO to P a g e | 17 to 864/Mum/2023 Shah Construction Company Ltd. Vs. DCIT, CC-1(3) allow the claim of this expenses. Therefore, this ground of appeal of the assesse is allowed.

After hearing both the side and considering the nature of expenses mostly incurred on cash basis we find that 10% disallowance is reasonable in respect of such expenses for want of proper bills etc. Therefore, these ground of appeal

The AO has not brought on record any material to establish that the impugned interest expenditure were pertained to the loans borrowed which was utilized for its Andheri Project before treating the same as WIP of that project. In this regard the assessee has provided detailed submission that such interest payment were pertained to the old business loans taken and utilized for business purposes other than the project at Andheri. The AO is required to examine the loan documents and supporting material/financial statements/loan transactions/project detail/bills etc. regarding the claim of the assesse that loan borrowed was not utilised for Andheri project but the same was utilized for other old projects on which the interest payment was made. Therefore this ground of appeal

During the course of assessment the AO has disallowed of Rs.48,670/- towards electricity expenses incurred for godown which was not let out during the year: 51. During the course of appellate proceedings before us the ld. Counsel explained that these electricity expenses were incurred for the godown during the period which was let out. Therefore, we restore this issue to the file of AO for deciding afresh after verification and examination of relevant supporting document to be furnished by the assessee. Therefore, this ground of appeal of the assessee is allowed for statistical purposes.

As the facts and the issue involved in this ground of appeal are similar to the ground no. 14 vide therefore applying the finding of ITA No. 861/Mum/2023 as mutatis mutandis this ground of appeal of the assessee is restored to the file of the AO for deciding a fresh as per law after verification. Therefore, this grounds of appeal is allowed for statistical purpose.

As discussed supra the AO has disallowed these interest expenses on the similar ground that business in Iraq in respect of which loan were taken originally was abandoned and there was no business activity and the expenses related to the Andheri Project were capitalized.

Since, we have adjudicated similar issue on identical facts vide ground no. 1 of the ITA 863/Mum/2023 applying the finding as mutatis mutandis this ground of appeal is also restored to the file of the AO for deciding afresh after verification. Therefore, this ground of appeal of the assessee is allowed for statistical purpose.