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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 02.08.2019 passed by the Commissioner of Income Tax (Appeals), (hereinafter referred to as CIT(A)] qua the assessment year 2016-17 on the grounds inter-alia that :- “1) The Learned CIT (A) has erred in law & on facts in upholding the Learned AO's action of disallowing interest expenses of Rs.13,17,68,113/- u/s. 43B of the Income Tax Act,1961 and reducing the same from Work-In-Progress as on 31-03-2016. 2) The Learned CIT (A) has erred in law & on facts in upholding the Learned AO's action of disallowing expenses of Rs.6,27,00,000/- (25%
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of construction material & other expenses of Rs.25.11 crores) & reducing the same from work in progress as on 31-03- 2016. 3) a) The Learned CIT (A) has erred in law & on facts in upholding the Learned AO's action of adding deemed rental income Rs.66,752/- i.e. (Rs.95,360 minus 30% deduction u/s 24(a) of the IT Act, 1961) & Rs.95,360/- ALV being 8% (following the judgment of various high Courts as well as Tribunals) of Rs.11,92,000/- of closing stock being unsold residential units as well as commercial units. b) The Learned CIT (A) has further erred in law & on facts in upholding the Learned AO's action of not accepting the decision of the Hon'ble Mumbai Tribunal in the case of M/s. Chennai Properties & Investments Ltd Vs CIT (SC). c) The Learned CIT (A) has erred in law & on facts in upholding the Learned AO's action of relying on the decision of Hon'ble Delhi high Court in the case of Ansal Housing & Leasing Co Ltd 2013. 4) The Learned CIT (A) has erred in law & on facts in upholding the Learned AO's action of imposing interest under Section 234B of the Income Tax Act, 1961. 5) The Appellant craves leave to add to and/ or amend and/ or delete and/ or modify and/or alter the aforesaid grounds of appeal as and when the occasion demands. 6) All the aforesaid grounds of appeal are independent, in the alternative and without prejudice to one another.”
Briefly stated facts necessary for consideration and adjudication of the issues at hand are : the assessee company is into the business of development and real estate. The return of income filed by the assessee for the year under consideration declaring total income of (–) Rs.15,00,000/- was subjected to scrutiny. During the scrutiny proceedings the Assessing Officer (AO) noticed from the details furnished by the assessee that it has not made any payment of interest to the tune of Rs.13,17,68,113/- to the financial institution or bank on or before the due date for filing the return and thereby disallowed the interest expenses claimed by the assessee to the tune of Rs.13,17,68,113/- under section 43B of the Income Tax
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Act, 1961 (for short ‘the Act’). The AO also noticed that the assessee company has claimed expenses on account of land expenses, construction and other expenses to the tune of Rs.2.11 crore and on failure of the assessee to file requisite details the AO made disallowance of 25% of the expenses claimed by the assessee and made the addition thereof and thereby reduced work in progress to Rs.6.27 crores. The AO also noticed from the details that there are some unsold flats seen as closing stock amounting to Rs.11.92 lakhs and on failure of the assessee to furnish the requisite details computed the income from the house property to the tune of Rs.66,572/- after allowing standard deduction @ 30% under section 24A of the Act. The AO thereby framed the assessment under section 143(3) of the Act.
The assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has confirmed the addition by partly allowing the appeal. 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.
This appeal was instituted on 12.04.2021 and since then numerous notices through email/registered post with acknowledgment (RPAD) were issued to the assessee which were received back undelivered with the remarks that “assessee has left the place of its last address”. However, on 19.01.2023 & 14.03.2023 assessee moved an application through its representative seeking adjournment on the ground that the promoters of the assessee are in judicial custody which were allowed. Thereafter on the next date none appeared on behalf of
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the assessee, notice was again issued but none appeared on behalf of the assessee. It appears that the assessee is not interested in prosecuting the present appeal, so the Bench has decided to dispose of the present appeal on the basis of material available on record with the assistance of the Ld. D.R. for the Revenue.
I have heard the Ld. D.R. for the Revenue, 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 case law relied upon.
Ground No.1 6. The AO made addition of Rs.13,17,68,113/- by way of disallowing the interest claimed by the assessee on the ground that the same has not been paid by the assessee to the financial institutions or the banks on or before the due date of filing the return. The Ld. CIT(A) decided this issue by returning following findings: “5.5. I have considered the facts and submissions carefully. The admitted fact is that the interest claimed is not paid till due date of filing of return and section 43B applies. The appellant is following mercantile basis of accounting. The interest expenses claimed pertaining to borrowings from financial institutions are covered u/s 43B which begins with a non-obstante clause. If such interest claimed is unpaid, the same is disallowable u/s 43B. If such expenditure is capitalized as WIP, such portion of interest will have to be reduced from closing WIP. The distinction between interest accrued but not due and interest accrued and due is not germane to application u/s 43B. What has to be seen is the expenditure claimed during the year. Further this will also apply to interest claimed during the year but capitalized on WIP. The ground of appeal no 3 is dismissed.”
Bare perusal of the aforesaid findings returned by the Ld. CIT(A) shows that when the interest claimed by the assessee remained unpaid the same is disallowable under section 43B of the
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Act. In case such expenditure is capitalized as WIP the same would have to be reduced from the closing WIP and thereby confirmed the disallowed made by the AO. I am of the considered view that when the interest accrued has not been paid the same has been rightly disallowed under section 43B of the Act. So I find no scope to interfere into the findings returned by the Ld. CIT(A).
Ground No.2 8. The assessee company has claimed construction expenses and other expenses to the tune of Rs.25,11,36,755/- and the same was capitalized/added to the closing WIP as on 31.03.2016. The aforesaid expenses are not forming part of computation of total income for the year under consideration nor they were the expenses already covered under section 30 to 36 of the Act. The Ld. CIT(A) decided this issue against the assessee by returning following findings: “6.4. I have considered the facts and submissions carefully. The appellant has argued that when expenses incurred are capitalized to WIP, it is not an expense claimed for the year and hence cannot be disallowed. I am unable to accept this argument. The expenses are incurred in the current year. They are debited to P & L account and then added to WIP which forms the closing WIP. It cannot be the case that these expenses can be examined only in the year that sales takes place out of WIP. This contention is rejected. 6.5. As regards the claim of expenditure, it is noted that what is submitted is only a listing of expenses. There are no supporting evidences filed. Even the ledger account submitted again merely lists the payments. The assessing officer had called for identification of payees, their PAN, bills, agreements etc. The same was not furnished. Even in appellate proceedings, copy of a solitary document for purchase of land for Rs 67.14 lakhs is filed. This is not registered or at least no evidence of its registration is filed. It does not give details of PAN of the payee/vendor. In these facts, the assessing officer was justified in doubting the expenses claimed and has disallowed 25% of such expenses claimed. This in the facts of the case is not unreasonable. The disallowance of Rs 6.27 crores is upheld, and ground of appeal no 4 is dismissed.”
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When the assessee has failed to furnish any supporting evidence for the purchase of land nor it is proved if the same was registered one nor filed PAN of the payee/vendors the Ld. CIT(A) has rightly confirmed the disallowance made by the AO to the tune of Rs.6.27 crore. So we find no ground to interfere into the findings returned by the Ld. CIT(A).
Ground No.3 10. The AO made addition of Rs.66,752/- on account of deemed rental income while computing the book profit under section 115JB of the Act which was challenged before the Ld. CIT(A) who has confirmed the addition by returning following findings: “7.4. I have considered the submissions carefully. As regards the decision in the case of Chennai Properties & Investments Ltd., that company was engaged in exploiting property by letting it out which was its main business. Hence it was held that the income is assessable as business income. The facts of the appellant are different. It is not engaged in letting out of property as its business. The appellant has also made a reference to the amendment w.e.f. 1.4.2018 in section 23(5). Firstly, it is noted that it is prospective and does not apply to the assessment year before me. Secondly, it also makes clear that in case of builders who have closing stock, deemed income /rental income will be assessable under income from house property. It only grants a leeway that for one year, deemed rental income will not be assessed since the builder may be trying to sell the property or rent it out. The taxation as deemed rental value is on statute to discourage property being locked up. Certain exceptions are carved out such as when the property remains vacant while assesse is looking for tenant. A builder who after constructing property and neither selling nor letting it out, will have to pay taxes of deemed rental value. 7.5. The addition as income from house property at Rs.66,752/- is upheld. Ground of appeal no 5 is dismissed. As regards the addition of this amount to book profits, I find that this is not as per the mandate of law and only adjustments that can be made to book profits by the assessing officer is those explicitly permitted u/s 115 JB. This adjustment is deleted. Ground of appeal no 6 is allowed.”
Perusal of the impugned findings returned by the Ld. CIT(A) goes to prove that the Ld. CIT(A) after thrashing the facts
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confirmed the addition made by the AO. When builder has constructed the property but has not sold not let it out it would have to pay the taxes on the deemed rental value. So I find no ground to interfere into the findings returned by the Ld. CIT(A).
In view of what has been discussed above, the appeal filed by the assessee is hereby dismissed. Order pronounced in the open court on 25.07.2023.
Sd/- (KULDIP SINGH) JUDICIAL MEMBER Mumbai, Dated: 25.07.2023. * Kishore, Sr. P.S.
Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench
//True Copy//
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.