THE PRINCIPAL COMMISSIONER OF INCOME TAX, PANAJI., vs. MILROC GOOD EARTH PROPERTY AND DEVELOPERS LLP.,

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TXA/109/2017HC BombayHCBM05001200201728 February 2018Author: HON'BLE SHRI JUSTICE N. M. JAMDAR,HON'BLE SHRI JUSTICE PRITHVIRAJ K. CHAVAN6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal did not involve a question of law and was therefore not entertainable under Section 260A of the Income Tax Act. The Tribunal and Commissioner (Appeals) had concurrently found, after considering the material, that no additions were made to work-in-progress. This fact was not controverted by the Revenue. The Tribunal observed that the Revenue did not dispute the assessee's contention that the amount was advanced based on commercial expediency. Furthermore, the Revenue failed to demonstrate that inventories were acquired out of borrowings requiring capitalization of interest under AS-16. The Tribunal also noted that advances from customers (₹68.57 crores) exceeded closing work-in-progress (₹45.04 crores) as of March 31, 2012. These findings were considered purely factual. The Court found that the Revenue's reliance on British Paints India Ltd. was distinguishable due to amendments in Section 145(2) and the fact that the issues involved were essentially questions of fact. As the Revenue could not demonstrate how a question of law arose from the concurrent findings of fact, the appeal was dismissed.

What were the facts?

The Revenue, through the Principal Commissioner of Income Tax, appealed an order of the Income Tax Appellate Tribunal (ITAT) dated November 22, 2016. The assessee, Milroc Good Earth Property and Developers LLP, a developer and construction company, filed its return for assessment year 2012-13 declaring ₹77,48,250. The Assessing Officer (AO) determined total income at ₹2,40,27,928, making additions of ₹1,59,27,795 for interest expenditure included in closing work-in-progress and ₹3,51,883 for sponsorship expenses. The Commissioner of Income Tax (Appeals) allowed the assessee's appeal, confirming disallowance only to the extent of ₹50,000, finding that bank overdraft was for working requirements and not solely for construction, and that valuation followed accounting standards. The ITAT dismissed the Revenue's appeal, confirming the Commissioner's findings.

What were the issues?

1. Whether the Tribunal erred in law by ignoring that the assessee took a loan for development and construction of residential buildings, rendering the finding that the loan was for working capital requirement incorrect and not directly attributable to work-in-progress? (Question of law) Assessee's Contention: The question raised is a question of fact, and no question of law arises. Revenue's Contention: The Tribunal ignored material facts and incorrectly concluded that the loan was for working capital, which cannot be directly attributed to work-in-progress. The Revenue relied on Commissioner of Income-tax vs. M/s. British Paints India Ltd. (1992 Suppl SCC 55).

Which sections of the Income-tax Act were involved?

Section 143(2),Section 143(3),Section 145,Section 145(2),Section 260A

AI-generated summary — verify with the full judgment below

1 txa109-17-28-2-18 Santosh IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO. 109 OF 2017 The Principal Commissioner of Income Tax, Panaji. ….. Appellant V/s. Milroc Good Earth Property And Developers LLP, 501, 5th Floor, Panaji, Goa. …... Respondent. Ms. Susan Linhares, Junior Central Govt. Standing Counsel for the appellant. Mr. A. Kulkarni, with Ms. Tanvi Kamat Ghanekar, Advocate for the respondent.

Coram : N.M. Jamdar & Prithviraj K. Chavan, JJ. Date : 28 February 2018. P.C.:

By this appeal, the Revenue, through the Principal Commissioner of Income Tax, has challenged the order passed by the Income Tax Appellate Tribunal, Panaji, dated 22 November 2016. 2. The Respondent-Assessee is in business of development and construction of residential buildings. In the year 2013, the Respondent-Assessee filed return of income for the year 2012-13,

2 txa109-17-28-2-18 declaring a total income of 7748250/-. The case was selected for ₹ scrutiny by the Assessing Officer and a notice was issued on 6 August 2013 under Section 143(2) of the Income Tax Act. Another notice was given in view of the change of the Assessing Officer. The assessment under Section 143(3) was finalised, determining the total income at 24027928/-, after making addition of 15927795/- ₹ ₹ since interest expenditure was included in closing of work in progress and addition of 351883/- was made in respect of sponsorship ₹ expenses to the returned income. The Assessing Officer, accordingly, passed an order on 27 March 2015. 3. The Respondent-Assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax, on the question of disallowance of Interest paid on loans of 15927795/- after considering the material on record, concluded ₹ that the bank overdraft was taken for the purpose of working requirement and was not utilized for construction work alone, but also for other expenses such as advertisements and publicity, business promotion, brokerage, commission (sales), etc. The Commissioner also observed that the valuation of stock and work in progress was done as per the Accounting Standards issued by the Institute of Chartered Accountants of India. The Commissioner accordingly allowed the appeal of the Respondent-Assessee by order dated

3 txa109-17-28-2-18 19 May 2016 and confirmed the disallowance to the extent of ₹ 50000/-.

4.

The Revenue filed an appeal before the Income Tax Appellate Tribunal (ITAT), Panaji and the Tribunal dismissed the appeal by an order dated 22 November 2016 and confirmed the findings of the Commissioner (Appeals).

5.

We have heard Ms. Susan Linhares, learned Standing Counsel for the Revenue and Mr. A. Kulkarni, learned Counsel for the Respondent.

6.

Ms. Linhares, the learned Standing Counsel for the Appellant urged that the appeal involves the question of law, namely whether the Tribunal has ignored the fact that the Assessee has taken loan for development and construction of residential buildings and the findings that the loan was taken for working capital requirement cannot be directly attributed to the work in progress, is incorrect. Mr. Kulkarni, the learned Counsel for the Respondent-Assesses submitted that the question raised is a question of fact and no question of law arises.

7.

We have gone through the orders passed by the Assessing Officer, the Commissioner (Appeals) and the Tribunal. The Tribunal

4 txa109-17-28-2-18 and the Commissioner (Appeals) had, after considering the material before them, found that no additions were made in the work in progress, which fact was not controverted by the Departmental Representative and rather it was conceded by the Departmental Representative. The Tribunal observed that the Revenue did not controvert the contention of the Respondent-Assessee that the amount was advanced keeping in view the commercial expediency. The Tribunal also observed that the Revenue was not able to show that the inventories were acquired out of borrowings and interest was to be capitalized keeping in view AS-16, issued by the Institute of Chartered Accountants of India. Further, the Tribunal also noted that the advances received from the customers by the Assessee were at 68.57 crores, while the closing work in progress was 45.04 crores ₹ ₹ and the advances were higher than the closing work in progress as on 31 March 2012. These findings, as rightly contended by the learned Counsel for the Respondent-Assessee, are purely factual issues.

8.

Ms. Linhares placed reliance on the decision of the Apex Court in the case of Commissioner of Income-tax vs. M/s. British Paints India Ltd.,1. We have perused this decision. When the decision was rendered, the Assessment Years 1963-64 and 1964-65 were under consideration. Mr. Kulkarni has placed on record the Section 145 which was applicable to those assessment years. Now, 1 1992 Suppl SCC 55

5 txa109-17-28-2-18 which are relevant for construing Section 145(2) of the Income-tax Act, 1961. Be that as it may, in the decision of the Apex Court in British Paints India Ltd. (supra), itself the Apex Court has indicted what is profit or trade or business and how it is to be ascertained and the questions analogous to the same, as involved in the present appeal, are essentially questions of fact. Both the authorities have rendered a concurrent finding of fact. The learned Standing Counsel for the appellant has not been able to demonstrate as to how the question of law will still arise, if the question of fact rendered by both the authorities are confirmed. The scope of the appeal under Section 260A of the Income Tax Act, is well settled. The High Court will entertain an appeal on pure questions of facts rendered on the assessment of evidence. 1 [2008] 297 ITR 176 (SC)

6 txa109-17-28-2-18

9.

In the circumstances, since no question of law is involved and we are only called upon to adjudicate the questions of fact, the appeal cannot be entertained and the same is dismissed. Prithviraj K. Chavan, J. N.M. Jamdar, J.

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