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Income Tax Appellate Tribunal, MUMBAI “D” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR & MS. SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JUDICIAL MEMBER :
This appeal is filed by the Revenue against the order dated 18.04.2013 passed by the CIT(A)-6, Mumbai for the Assessment Year 2010-11.
The grounds of appeal raised by the Revenue are as under :
“1. On the facts & circumstances of the case and in law, the Id. CIT(A) has erred in directing the Assessing Officer to delete the addition made on account of accrued profits of Rs.1,15,46,417/- without appreciating that the amended agreement deleting the profit clause was a colourable device to avoid tax since no prudent businessman would forgo his accrued profits of Rs.1.12 crores after three years of toiling and incurring cost of Rs.16.07 crores.
2. On the facts & circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.59,57,061/- without appreciating the Page 2 of 6 fact that the bank fund has been utilized by the assessee for ‘Imperial Windsor' and 'Model Town' project, therefore, the question of allowing the interest does not arise?.
On the facts & circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.7,55,173/- without appreciating the fact that the entire interest component is attributed to the ongoing project, therefore, the question of allowing the interest does not arise?.
4. On the facts & circumstances of the case and in law, the Id. CIT(A) has erred in deleting the addition of Rs.33,37,500/- without appreciating the fact of the case that the payment of Rs.33,37,500/- to M/s. Laxsons (I) Pvt. Ltd. is towards the part repayment of loan and not repayment of interest on loan as assessee has taken interest free loan from its sister concern i.e. M/s. Laxsons (I) Pvt. Ltd. Therefore, the question of repayment of interest does not arises.
5. On the facts & circumstances of the case and in law, the Id. CIT(A) has erred in deleting the disallowance of depreciation on Imperial Windsor without appreciating the fact that the cost of Imperial Windsor is held to be in the nature of stock-in-trade, therefore, question of allowing the depreciation does not arise?.
6. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored.”
3. The assessee is a Builder and Developer. The assessee filed its e-return of income on 14.10.2010 declaring total income of Rs.6,30,329/- During the year under consideration, the assessee has credited miscellaneous sales and receipts amounting to Rs.88,50,440/- to the Profit & Loss account. The assessee also debited expenses amounting to Rs.82,33,476/- and declared Net Profit at Rs.6,16,964/-. The said expenses included interest expenses amounting to Rs.63,25,394/-, brokerage & commission amounting to Rs.9,71,114/- and processing fees amounting to Rs.7,05,920/-. After adjusting the depreciation, the total income was declared at Rs.6,30,329/-. The assessee also claimed credit of TDS amounting to Rs.17,81,746/-. The Assessing Officer made addition of Rs.1,15,46,417/- as accrued profit being 7% of the assumed cost of construction of Rs.16.49 Crores, based upon the agreement dated 21.07.2005. The Assessing Officer disallowed interest of Rs.59,57,061/- paid to Oriental Bank of Commerce. The Assessing Officer also disallowed the interest of Rs.3,68,333/- and loan processing charges of Rs.7,05,920/- paid to Religare. The Assessing Officer disallowed Rs.33,37,500/- claimed by the assessee as Page 3 of 6 reimbursement of licence fees to Laxsons (I) Pvt. Ltd. The Assessing Officer also disallowed the claim of depreciation.
Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
As regards ground no.1 relating to deletion of the addition made on account of accrued profits of Rs.1,15,46,417/-, the Ld. D.R. submitted that the CIT(A) ignored the amended agreement wherein the profit clause was deleted and thus the said agreement was colourable device to avoid tax. The ld. D.R. further submitted that no prudent businessman would forgo his accrued profits of Rs.1.12 Crores after 3 years of toiling and incurring cost of Rs.16.07 Crores. The ld. D.R. relied upon the Assessment Order.
The ld. A.R. relied upon the order of CIT(A). The ld. A.R. further submitted that the assessee has properly amended the agreement and the Assessing Officer has only assumed that the second amendment to the agreement was false and colourable device without realizing that the second amendment agreement benefitted the assessee by about Rs.2 Crores, while foregoing only 7% profit, which was much less than the figure of Rs.2 Crores. Thus, the ld. A.R. submitted that the CIT(A) has rightly deleted the addition.
We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the CIT(A) has not given detailed finding as to why the second amendment to the agreement was beneficial and how it has sustained in the eyes of law. This issue has not been properly verified either by the Assessing Officer or by the CIT(A). Therefore, this needs to be verified. Hence, we are remanding back this issue to the file of Assessing Officer for proper adjudication. Ground no.1 is partly allowed for statistical purposes.
As regards ground no.2 relating to addition of Rs.59,57,061/- which is in respect of disallowance of interest paid to Oriental Bank of Commence, the Ld. D.R. submitted that the CIT(A) failed to look into the fact that the bank fund has been Page 4 of 6 utilised by the assessee for the ‘Imperial Windsor’ and ‘Model Town’ projects, therefore, the question of allowing the interest does not arise.
The ld. A.R. submitted that the CIT(A) has rightly held that the Imperial Windsor project was already completed and the assessee has leased out the portions of Imperial Windsor whose income was declared in the current financial year and, therefore, the question of capitalisation of interest of Rs.41,87,663/- does not arise. As regards construction of Model Town, the same was not commenced during the year and the Assessing Officer was not justified in disallowing the interest of Rs.17,69,398/- apportioned to the Model Town Project.
We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the CIT(A) has not correlated the amount which was taken from the Oriental Bank of Commerce and how the property which was not in existence as well as the property which was leased out will come in the picture related to disallowance of interest. The issue needs to be verified. Therefore, we are remanding back this issue to the file of the Assessing officer. Ground no.2 is partly allowed for statistical purposes.
As regards deletion of the addition of Rs.7,55,173/-, the ld. D.R. submitted that the CIT(A) ignored the fact that the entire interest component is attributable to the ongoing project and, therefore, the interest should not have been allowed.
The ld. A.R. relied upon the order of the CIT(A).
We have heard both the parties and perused all the relevant materials available on record. This addition of Rs.7,55,173/- is in respect of Imperial Windsor and Model Town Projects itself and the CIT(A) has not given a detailed finding as to how the same has to be deleted. Therefore, this issue also needs to be verified. We therefore, remand back this issue to the file of Assessing Officer. Thus, ground no.3 is partly allowed for statistical purpose.
As regards ground no.4 relating to addition of Rs.33,37,500/- of rent receipts, the ld. D.R. relied upon the Assessment Order.
The ld. A.R. relied upon the findings of the CIT(A) and submitted that the CIT(A) rightly deleted this addition.
We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that the CIT(A) has clearly mentioned in the finding that the rent to the extent of Rs.33,37,500/- is the income of Laxsons by overriding title and the same cannot be treated as income of the assessee. The agreement between the two parties also states the same. Thus, the CIT(A) has rightly deleted this addition. There is no need to interfere with the finding of the CIT(A). Ground no.4 is dismissed.
As regards ground no.5 relating to disallowance of depreciation on Imperial Windsor project, the ld. D.R. submitted that the CIT(A) ignored the fact that the case of Imperial Windsor is held to be in the nature of stock-in- trade, therefore, question of allowing the depreciation does not arise. The ld. D.R. relied upon the order of the Assessing Officer.
The Ld. A.R. relied upon the decision of the CIT(A) but at the same time the ld. A.R. submitted that the CIT(A) has not rightly deleted this addition and conceded the said plea.
We have heard both the parties and perused all the relevant materials available on record. The CIT(A) has totally ignored the fact that the cost of the project Imperial Windsor is in the nature of stock-in-trade and, therefore, the finding of CIT(A) was not just and proper. Hence, ground no.5 is allowed.
In the result, appeal of the Revenue is partly allowed for statistical purposes. Order pronounced in the open Court on this 23rd day of March, 2022.