MONARCH REALTY AND DEVELOPERS PVT LTD.,MUMBAI vs. DCIT 10(2)(2), MUMBAI

The assessee has filed the appeal against the order of the Commissioner of Income Tax (Appeals)-17, Mumbai passed u/s 143(3) and 250 of the Act. The assessee has raised the following grounds of appeal:

The brief facts of the case are that, the assessee company is engaged in the business of construction works. The assessee has filed the return of income for the A.Y 2014-15 on 24.09.2014 disclosing a total loss of Rs. 1,05,27,236/-.Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire was issued. In compliance, the assessee has filed the details and the case was discussed. On perusal of the financial statements the Assessing officer (A.O) find that the assessee has credited interest income of Rs. 2,94,247/- and in computation of income it was disclosed under income from other sources. Further there was miscellaneous income credit in the profit and loss account. Whereas the assessee has claimed expenditure of Rs.91,40,725/- and depreciation of Rs. 17,41,124/- in the profit and loss account. The A.O observed that since there was no revenue/income credited to profit and loss account which is taxable as a business income, therefore the expenses debited to the profit and loss account should not be allowed as revenue

Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) has considered the grounds of appeal, submissions of the assessee, findings of the assessment proceedings and confirmed the additions made by the A.O, whereas in respect of interest paid to financial institutions disallowed u/s 40(a)(ia) of the Act, the CIT(A) has granted the relief and partly allowed the appeal. Aggrieved by Monarch Realty And Developers Pvt Ltd, Mumbai. - 4 - the order of the CIT(A), the assessee has filed an appeal before the Honble Tribunal.

In the course of hearing proceedings, the Ld.AR has filed the details to substantiate that the assessee could not take up the projects in various places due to high flood levels, and the assessee has got the plan sanctioned for construction. We find that the assessee company was in active business of construction works in the earlier years but in the said assessment year, the projects could not commenced. The A.O has made presumption of temporary and slow movement of construction activity as no business activity and disallowed the expenses. The fact remains that the assessee has made investments in sister concern firm as per the financial statements. The Monarch Realty And Developers Pvt Ltd, Mumbai. - 6 - assessee company is following mercantile system of accounting and books of accounts are audited. On perusal of the balance sheet at page 37 of the paper book, we find that the assessee has invested in the fixed assets and provided the long term loans and advances. Prima- facie there is no categorical findings by the A.O that the assessee has not conducted any business. The expenses are incurred wholly and exclusively for the purpose of business. On perusal of the audited financial statements and auditor report of the assessee company, the assessee has profit before tax (-) Rs.1,03,52,092/- as on 31.03.2014 which was carried forward to the subsequent year. On verification of balance sheet, there is increase in non current investments from the earlier years and long term capital borrowings. Further the other current liabilities are reduced in comparison to earlier year. The observations of the A.O. that the assessee company is not actively engaged cannot be acceptable. The fact remains that various financial transactions have been incorporated in the accounts for the fund flow and these transactions are part and parcel of the business activities as the finance/ working capital plays a vital role in the construction activity and the projects are delayed due to external factors and real estate market. We support our view on the ratio of decision of Honble High Court of Monarch Realty And Developers Pvt Ltd, Mumbai. - 7 - Madras in L.VE.Vairavan Chettiar Vs CIT 72 ITR 114 (Madras). Accordingly, the order of the CIT(A) on the disputed issue is set-aside and direct the Assessing officer to delete the addition and allow the grounds of appeal in favour of the assessee.

In the result, the appeal filed by the assessee is allowed.