ACIT, CIRCLE 2 (1)(1), MUMBAI vs. BHISHMA REALTY LTD., MUMBAI

This appeal in CO No.52/Mum/2021 for A.Y.2011-12 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-4, Mumbai in appeal No.CIT(A)-4/e-file-160/DCIT 2(1)(1)/2016- 17 dated 02/08/2019 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/12/2016 by the ld. Dy. Commissioner of Income Tax, Circle 2(1)(1), Mumbai (hereinafter referred to as ld. AO).

Let us take up the appeal of the Revenue wherein the only issue to be decided is as to whether the ld. CIT(A) was justified in granting relief to the assessee in the sum of Rs.2,09,45,388/- in the facts and circumstances of the case.

We have heard rival submissions and perused the materials available on record. We find that assessee is a limited company engaged in the business of property development and had filed its return of income for the A.Y. 2011-12 on 28/09/2011 declaring total income of Rs.79,64,359/-. The assessment was originally completed u/s.143(3) of the Act on 13/02/2014 determining total income at Rs.99,89,050/-. Subsequently, this assessment was reopened u/s.147 of the Act vide issuance of notice u/s.148 of the Act on 16/03/2016 after recording reasons for reopening the assessment. The assessee in response to notice u/s.148 of the Act filed its return of income on 14/04/2016 and sought for reasons recorded which was duly provided to the assessee by the ld. AO vide letter dated 15/06/2016. The assessee filed its objections to reopening the assessment on 08/07/2016 and the said objections were disposed of by the ld. AO by passing a speaking order on 17/11/2016. Thereafter, the CO No.52/Mum/2021 M/s. Bhishma Realty Ltd., notice u/s.143(2) of the Act dated 19/12/2016 was issued and served on the assessee. The ld. AO observed that assessee has not started its commercial activity during the year and therefore, the expenses at Rs.68,76,49,355/- relating to construction / development activity was added to work-in-progress (WIP) and accordingly, the total closing WIP was arrived at Rs.194,93,30,907/-. The ld. AO observed that assessee had earned interest on FD income of Rs.3,04,38,317/- and dividend of Rs.2,57,50,179/-. The ld. AO also observed that assessee had debited construction expenses of Rs.69,44,18,338/- and administrative expenses of Rs. 1,63,37,743/- (totaling to Rs.71,07,56,081/-) and out of this only Rs.68,76,49,355/- has been transferred to WIP and rest of the expenses amounting to Rs.2,31,06,726/- has been claimed as deduction. Accordingly, the ld. AO show-caused the assessee as to why the expenses claimed should not be added to work-in-progress instead of adjusting the same against interest income. In response, assessee vide letter dated 22/12/2016 submitted that assessee has ultimately claimed expenses only to the extent of Rs.39,31,610/- in the return of income. Since, there was a disallowance of expenses u/s.14A of the Act in the sum of Rs.20,24,694/- under the claim of expenses stood only at Rs.19,06,916/- and rest of the expenses had been duly transferred to WIP. Accordingly, the assessee submitted that there is no question of further disallowance that would arise in this case. The ld. AO ignored the contentions of the assessee and observed that from the financial statements of the assessee, the assessee had shown sales in F.Y.2009-10 of Rs.76.44 Crores and the same is not from sale of property of this project but from other activities and that assessee is following project completion method and therefore, the entire expenses incurred on the project should be added to closing work-in-progress and cannot be allowed as deduction to be set off against other heads of income. He also observed that interest income earned by the assessee is to be taxed separately under the head ‘income from other sources’. Accordingly, he disallowed a sum of Rs.2,09,45,388/- (Rs.2,31,06,726/- -( 1,36,644 + 20,24,694) being expenses exclusively incurred for the purpose of property development which are to be added to the closing work-in-progress.

Aggrieved by this order, the Revenue is in appeal before us on merits and assessee is in cross objection before us on invalid assumption of jurisdiction u/s.147 of the Act.

Before us, the ld. DR merely reiterated the contentions of the ld. AO which had already been duly met line by line by the ld. CIT(A) in his order which had already been elaborated hereinabove. The categorical findings recorded by the ld. CIT(A) that assessee had indeed commenced business activities during the year and hence, the regular business expenses incurred in the normal course becomes an allowable expenditure, was not controverted by CO No.52/Mum/2021 M/s. Bhishma Realty Ltd., the ld. DR before us with any material evidences. Hence, we do not find any infirmity in the order of ld. CIT(A) granting relief to the assessee on merits.

In the result, appeal of the Revenue is dismissed and cross objection of the assessee is dismissed as infructuous.