DCIT - 15(2)(1), MUMBAI vs. KALSHA BUILDERS PVT. LTD., NAVI MUMBAI

PER RAVISH SOOD, JM

“1. On the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of Rs.3,60,00,000/- made on account of directors remuneration which is huge compared to the ratio of total expenses shown in the profit & loss account of Rs.4,37,82,002/- in order to suppressed the future profit.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that expenditure incurred on interest is revenue is nature ignoring the fact that assessee company is engaged in the business of developing projects and interest bearing loan are used for the capital purpose of developing the project and required to be capitalized to work in progress.

3. The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO be restored.

DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd.

Sr. No. Finance Cost Amount in Rs.

WIP. However, the A.O not being persuaded to subscribe to the aforesaid claim of the assessee disallowed the interest expenditure insofar the same was relatable to the bank overdraft and unsecured loans and made a consequential addition of Rs.66,72,179/-. Apart from that, it was observed by the A.O that the assessee had claimed an expenditure of Rs.3,60,00,000/- on account of remuneration to its directors, as under:

Sr. No. Remuneration to Directors Amount in Rs. 1. Ramchandra G. Vichare 2,34,00,000/- 2. Damodar S. Kardile 1,14,00,000/- 3. Neelima D. Kardile 6,00,000/- 4. Shailaja R. Vichare 6,00,000/- Total 3,60,00,000/- Observing that the assessee could not substantiate the payment of the aforesaid exorbitant amount of remuneration to its directors, the A.O held a conviction that the assessee had tried to claim the aforesaid amount as an expense with an intent to book a loss during the year under consideration, which could thereafter be ‘set off’ against its income, if any, for the subsequent years. It was further observed by the A.O that a major portion of the directors remuneration of Rs.2.56 crores (out of Rs.3.60 cores ) was reflected by the assessee as an outstanding liability under the head ‘directors remuneration payable’ in its balance sheet for the year under consideration. Also, it was observed by the A.O that the assessee had raised unsecured loans of Rs.6,96,00,000/- from the abovementioned directors on which it had claimed to have paid an interest amounting to Rs. 39,02,832/-. In the backdrop of his aforesaid observations, the A.O held a conviction that assessee by providing unreasonable remuneration to the directors had thereafter received back the funds by way of interest bearing loans from them, and thus, in the garb of the said transactions had tried to suppress its profits and convert the same into loss. On being confronted with the aforesaid facts the assessee tried to dispel the doubts raised by the A.O as regards the genuineness of the aforesaid transactions. However, the A.O not being persuaded to accept the claim of the assessee disallowed the entire amount of the directors remuneration of Rs.3,63,00,000/- under Sec. 40A(2)(b) of the Act. After inter alia making the aforesaid additions/disallowances the A.O assessed the total income of the assessee under the normal provisions at Rs. 2,20,66,080/- and ‘book profit’ under Sec. 115JB at Rs.2,09,04,614/-.

4. Aggrieved, the assessee assailed the aforesaid additions/disallowance in appeal before the CIT(A). Insofar the disallowance of the interest expenditure was concerned, the CIT(A)

DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd. observed that the dispute therein involved was as to whether the finance cost was on revenue account, and thus, was to be allowed as a periodic cost or was required to be capitalized to WIP. As such, the CIT(A) was of the view that the dispute was mainly related to the year of taxability, since at the end of the project there would be no impact on the profit or loss as the entire finance cost had to be allowed by the A.O as a part of the WIP as against periodic cost claimed by the assessee. As observed by the CIT(A), admittedly the entire borrowing in question was utilized for the purposes of the business of the assessee. It was further observed by the CIT(A) that the assessee had consistently been following the same method of accounting of treating the finance cost as part of period cost, and this method of accounting was accepted by the A.O in the earlier years. Adverting to the facts involved in the case of the assessee for the immediately preceding year i.e A.Y 2012-13, it was observed by the CIT(A) that the assessee in the said year had claimed deduction of finance cost aggregating to Rs. 41,27,116/- (out of which an amount of Rs. 34,00,205/- was in respect of interest on unsecured loans utilized towards business purposes). It was noticed by the CIT(A) that the assessment for A.Y 2012-13 was finalized u/s 143(3), and the A.O had accepted the finance cost as a periodic cost and not capitalized the same to WIP. It was observed by the CIT(A), that the A.O while capitalizing the interest expenditure to WIP during the year under consideration had not given any reason for deviating from the regular method of accounting that was followed by the assessee and accepted by the department in the preceding years. Further, the CIT(A) observed, that the claim of the assessee that the interest expenditure being a periodic cost was thus to be allowed as a deduction even though corresponding income was to be recognized only upon completion of the project was supported by the judgment of the Hon’ble High Court of Bombay in the case of ACIT Vs. Lokhandwala Constructions Industries Ltd. (2003) 260 ITR 579 (Bom). Also, it was observed by the CIT(A) that the ICDS issued on valuation of inventories (though relevant in subsequent years), also supported the aforesaid claim of the assessee. Accordingly, the CIT(A) finding favour with the contentions advanced by the assessee vacated the disallowance of interest expenditure of Rs. 66,72,179/- so made by the A.O. As regards the disallowance of the directors remuneration of Rs. 3.60 crores, it was observed by the CIT(A) that in earlier years also which had been subjected to scrutiny assessments viz. A.Y 2007-08 to A.Y 2012-13, the remuneration paid to the directors was allowed and no dispute had therein arisen. In fact, it was observed by the CIT(A) that in the DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd. immediate preceding two assessment years i.e A.Y 2011-12 and A.Y 2012-13 the assessee company had raised claim for deduction of remuneration to directors aggregating to Rs. 5.94 crore, which was accepted by the department in scrutiny assessment. Also, it was observed by the CIT(A) that all the directors had shown the amount of remuneration in their respective returns of income and had paid tax on the same at the maximum marginal rate of tax. As such, the CIT(A) was of the view that there was neither any loss to the revenue nor evasion of any tax by the assessee. In the backdrop of his aforesaid observations the CIT(A) vacated the disallowance of directors remuneration of Rs. 3.60 crore made by the A.O.

projects. Observing, that the assessee was recognising its income/revenue as per the project completion method, the A.O was of the view that as the interest bearing borrowed funds were used by the assessee for a capital purpose, thus, the interest expenses relatable to the same being in the nature of a carrying cost was to be capitalised to the WIP of the assessee. At this stage, we may herein observe that it was the claim of the assessee before the A.O that it had fulfilled the matching concept of cost and revenue while allocating all costs to the respective projects for which they were incurred. Also, it was submitted by the assessee that as the general administrative cost and finance cost were not attributable to any specific project, therefore, they were debited as a periodic cost in the profit and loss account for the year under consideration. But then, we find that the aforesaid claim of the assessee was rejected by the A.O without assigning any cogent reason. Be that as it may, we find that the assessee had consistently been following the same method of treating the finance cost as part of its periodic cost, and this method of accounting was accepted by the A.O in the earlier years. As is discernible from the order of the CIT(A), the assessee in the immediately preceding year i.e A.Y 2012-13 had claimed deduction of finance cost aggregating to Rs. 41,27,116/- (out of which an amount of Rs. 34,00,205/- was towards interest on unsecured loans), which was accepted by the A.O vide his assessment framed u/s 143(3) of the Act. In sum and substance, the A.O while framing the assessment in the case of the assessee for the immediately preceding year i.e A.Y 2012-13 had allowed the assessee’s claim of deduction of interest on borrowed capital as a periodic cost and had not capitalized the same to WIP. We are unable to comprehend that as to on what basis the A.O during the year under consideration had made a deviation from the regular method of accounting that was followed by the assessee and accepted by the department in the preceding years. In fact, we concur with the view taken by the CIT(A) that there had to be a cogent reason for the revenue for justifying a deviation from the regular method of accounting that was followed by the assessee and accepted by the department in te preceding years. In our considered view, as long as the method of accounting consistently followed by the assessee is not held to be an unreasonable method, then, in such a case even if a better method could be visualized, the method consistently followed cannot be rejected. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Tata Iron & Steel Co .Ltd. (1977)106 ITR 363 (Bom). Also, as observed by the Hon’ble Supreme Court in the case of CIT Vs. Bill Hari Investment Ltd. (2008) 299 ITR 1

DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd.

(SC), every assessee is entitled to arrange its affairs and follow the method which the department had earlier accepted. It was further observed by the Hon’ble Court, that it was only in those cases where the department records a finding that the method adopted by the assessee results in distortion of profits, that the department can insist on substitution of the existing method. As such, in the backdrop of our aforesaid observations, we are unable to persuade ourselves to subscribe to the deviation by the A.O from the regular method of accounting that was followed by the assessee and accepted by the department in the preceding years. We are thus of the considered view that there was no justification for the A.O to have disallowed the assessee’s claim for deduction of interest expenditure as a periodic cost specifically when the same in the course of scrutiny assessment framed u/s 143(3) for A.Y 2012-13 was accepted as such. Independent of our aforesaid observations, we find that the aforesaid claim of deduction of interest expenditure by the assessee is in conformity with the Accounting Standard-2 (AS-2) issued by the ICAI on “Valuation of Inventories”. AS-2 provides that “overheads other than production overheads should be included as a part of the inventory cost only to the extent that they clearly relate to putting the inventories in their present location and condition”. In our considered view, as the interest costs are in the nature of periodic costs, it would thus not only be prudent but in fact fair and correct to treat them as a revenue expenditure and debit the same in the profit & loss account. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of Asst. CIT Vs. Lokhandwala Construction Industries Ltd. (2003) 260 ITR 579 (Bom). In the said case, the Hon’ble High Court had observed that periodic costs cannot be treated as carrying costs and have to be allowed as deduction even though corresponding income is to be recognised only on completion of the project. The Hon’ble High Court while concluding as hereinabove had observed as under:

“4. From the facts found by the Tribunal on record, it is clear that assessee undertook two-fold activities. It bought and sold flats. Secondly, the assessee was also engaged in the business of construction of buildings. The profits from both the activities were assessed under s. 28 of the IT Act. In this case, we are concerned with the second activity (hereinafter referred to, for the sake of brevity, as "Kandivali project"). According to the CIT, loan was raised for securing land/development rights from the Mandal. That, the loan was utilised for purchasing the development rights, which, according to the CIT, constituted a capital asset. According to the CIT, since the loan was raised for securing capital asset, the interest incurred thereon constituted part of capital expenditure. This finding of the CIT was erroneous. In the case of India Cements Ltd. vs. CIT (1966) 60 ITR 52 (SC), it was held by the Supreme Court that in cases where the act of borrowing was incidental to carrying on of business, the loan obtained was not an asset. That, for the purposes of deciding the claim of deduction under s. 10(2)(iii) of DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd. the IT Act, 1922 [s. 36(1)(iii) of the present IT Act], it was irrelevant to consider the purpose for which the loan was obtained. In the present case, the assessee was a builder. In the present case, the assessee had undertaken the project of construction of flats under the Kandivali project. Therefore, the loan was for obtaining stock-in-trade. That, the Kandivali project constituted the stock-in-trade of the assessee. That, the project did not constitute a fixed asset of the assessee. In this case, we are concerned with deduction under s. 36(1)(iii). Since the assessee had received loan for obtaining stock- in-trade (Kandivali project), the assessee was entitled to deduction under s. 36(1)(iii) of the Act. That, while adjudicating the claim for deduction under s. 36(1)(iii) of the Act, the nature of the expense— whether the expense was on capital account or revenue account—was irrelevant as the section itself says that interest paid by the assessee on the capital borrowed by the assessee was an item of deduction. That, the utilization of the capital was irrelevant for the purposes of adjudicating the claim for deduction under s. 36(1)(iii) of the Act [see judgment of the Bombay High Court in the case of Calico Dyeing & Printing Works vs. CIT (1958) 34 ITR 265 (Bom)]. In that judgment, it has been laid down that where an assessee claims deduction of interest paid on capital borrowed, all that the assessee had to show was that the capital which was borrowed was used for business purpose in the relevant year of account and it did not matter whether the capital was borrowed in order to acquire a revenue asset or a capital asset. The said judgment of the Bombay High Court applies to the facts of this case.”

Further, we find that ICDS II issued on valuation of inventories (though relevant to the subsequent years) also supports the aforesaid claim of deduction of the assessee. In the backdrop of our aforesaid deliberations, we are of the considered view that as the interest bearing borrowed funds had been raised by the assessee for the purpose of its business, and used for the said purpose, therefore, the interest expenditure pertaining to such borrowed funds was rightly claimed by the assessee and allowed as a deduction by the CIT(A). We thus finding no infirmity in the view taken by the CIT(A) in context of the aforesaid issue under consideration uphold his order to the said extent. The Ground of appeal No. 2 is dismissed.

8. We shall now take up the claim of the revenue that the CIT(A) had erred in vacating the disallowance of the directors remuneration of Rs. 3.60 crores made by the A.O u/s 40A(2)(b) of the Act. As observed by us hereinabove, the assessee had claimed an expenditure of Rs.3,60,00,000/- on account of remuneration to its directors, as under:

Sr. Name of Director Age Date of Experience Responsibilities Amount in Rs. No. Commence- in ment of business Employment 1. Ramchandra G. Vichare 57 22/09/1992 35 years Ke y Person- Bring the Purchase projects in the 2,34,00,000/- company, policy decisions, Public & Social relations 2. Damodar S. Kardile 62 01/04/1993 27 years Finance, Taxation, Legal, CIDCO, NMMC. 1,14,00,000/- 3. Neelima D. Kardile 51 22/09/1992 20 years Accounts 6,00,000/- 4. Shailaja R. Vichare 58 01/09/2005 11 years General Administration & H.R 6,00,000/- Total 3,60,00,000/- As noticed by us hereinabove, the A.O in the course of the assessment proceedings observed that the assessee had claimed deduction of an exorbitant amount of remuneration to its directors, which thereafter was routed back to the company by way of interest bearing funds

DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd. advanced by the said directors. Observing that the assessee could not substantiate the payment of the aforesaid exorbitant amount of remuneration to its directors, the A.O held a conviction that the assessee had tried to claim the aforesaid amount as an expense with an intent to book losses during the year under consideration. On a perusal of the assessment order, we find, that the A.O was of the view that the assessee had intended to book the aforesaid losses during the year in question so that the same could thereafter be ‘set off’ against its income, if any, for the subsequent years. Further, it was observed by the A.O that a major portion of the directors remuneration of Rs. 2.56 crores (out of Rs.3.60 cores) was reflected by the assessee as an outstanding liability under the head ‘directors remuneration payable’ in its balance sheet for the year under consideration. Also, it was observed by him that the assessee had raised unsecured loans of Rs.6,96,00,000/- from its aforesaid directors on which it had claimed to have paid an interest amounting to Rs.39,02,832/-. In the backdrop of his aforesaid observations, the A.O disallowed u/s 40A(2)(a) the entire amount of remuneration to directors amounting to Rs. 3,60,00,000/-. On appeal, the CIT(A) finding favour with the contentions advanced by the assessee had vacated the aforesaid disallowance made by the A.O.

Sr. No. Assessment Year Remuneration paid to directors 1. 2008-09 Rs. 2.28 crores 2. 2009-10 Rs. 1.47 crores 3. 2010-11 Rs. 2.28 crores 4. 2011-12 Rs. 5.94 crores 5. 2012-13 Rs. 5.94 crores.

Interestingly, the aforesaid claim of deduction of remuneration paid to directors by the assessee company was subjected to scrutiny assessment in the aforesaid respective years, and was accepted as such by the department. We concur with the view taken by the CIT(A), that now when the assessee’s claim of having paid a remuneration to the directors aggregating to Rs.

DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd.

5.94 crores was found to be in order and allowed by the department while framing the respective assessments in the case of the assessee for the immediately two preceding years i.e A.Y 2011-12 and A.Y 2012-13, then as to on what basis the remuneration aggregating to Rs. 3.60 crores paid to the same directors by the assessee company during the year in question could be held to be exorbitant. Apart from that, we find that the assessee company that was incorporated way back in the year 1992, had since then with the same set of directors successfully developed 6 projects, one of which comprised of a housing project having 370 Units at Koparkhairane, Navi Mumbai. Insofar the year under consideration is concerned, the assessee was in the processs of constructing a thirteen-storeyed building, viz. “Kalash Sagar” on a plot of land of 1000 Sq. Metres at Nerul, Navi Mumbai, wherein each floor comprised of one plush residential unit consisting of 4 bed rooms, hall, kitchen and an additional store & servant room. On a perusal of the records, we find, that the assessee had commenced construction of the project in the year 2011, and the same was thereafter completed in the month of May, 2015, when the occupancy certificate was received from the local authority. Further, the assessee company had acquired a plot of land admeasuring 3,900 Sq. mtrs. at Ulwe, Taluka: Panvel, District: Raigad, and also a plot of land admeasuring 15,000 Sq. mtrs at Kharghar, Taluka : Panvel, District : Raigad, for which during the year under consideration advances were paid to various parties. On the basis of the aforesaid facts, we find, that the assessee company with the directions of the aforesaid directors had successfully developed projects in the preceding years, and was in the process of constructing a project during the year in question. As such, it is not a case that a non-performing company whose operations had came to a standstill was found to be paying exorbitant remuneration to its directors. Infact the vast experience of the directors who had been rendering their services to the assessee company for decades dispel any type of doubt as regards the genuineness and veracity of the remuneration paid by the assessee to them during the year under consideration. Apart from that, we find that all the directors had duly reflected their respective remunerations in their individual income-tax returns, and the said amounts had been subjected to tax at the maximum marginal rate in their hands. As such, it is neither a case of any leakage of revenue nor that of a tax evasion. At this stage, we are reminded of the CBDT Circular No. 6P(LXXVI-66) of 1968, dated 06.07.1968, wherein it was clearly stated that the provisions of Sec. 40A(2)(b) are meant for checking tax evasion and cannot be pressed into service in a manner which would cause

DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd. hardships in bonafide cases. Relying on the said circular, the Hon’ble High Court of Bombay in the case of CIT Vs. Indo Saudi Services (Travel) P. Ltd. (2009) 310 ITR 306 (Bom), had observed, that no disallowance u/s 40A(2)(b) can be made in respect of payments to relatives or sister concerns when there was no attempt to evade tax. As such, we are of the considered view, that now when the directors had been subjected to tax at the maximum marginal rates on the respective amounts of remuneration received by them from the assessee company, therefore, in the absence of any revenue leakage the provisions of Sec. 40A(2)(a) on the said count also could not have been invoked. As regards the observation of the A.O that the assessee had not paid the amount of remuneration in full to the directors and had shown an amount of Rs. 2.56 crores as a liability under the head ‘Directors Remuneration payable’ in the balance sheet as on 31.03.2013, we find had been arrived at by him by adopting a half baked approach. Admittedly, an amount of Rs. 2.56 crores was reflected by the assessee as outstanding/payable as on 31.03.2009. But then, as per the details filed by the assessee before the lower authorities, the said liability was discharged and the respective payments were made by the assessee in the immediately succeeding year, as under:

Date Amount Paid 27.04.2013 Rs. 72,30,600/- 25.07.2013 Rs. 5,69,356/- 06.09.2013 Rs. 1,35,46,510/- 04.12.2013 Rs. 30,00,000/- 30.12.2013 Rs. 12,62,377/- Total Rs. 2,56,08,843/- As such, the aforesaid doubts drawn by the A.O as regards the genuineness and veracity of the assessee’s claim of having paid a remuneration of Rs. 3.60 crores to its directors, on the ground, that a substantial part of the same was reflected as outstanding/payable, looses all force in the backdrop of the aforesaid factual position. Lastly, we may herein observe that we are also unable to subscribe to the disallowance of the entire amount of directors remuneration of Rs. 3.60 crores as had been carried out by the A.O u/s 40A(2)(a) of the Act. As submitted by the ld. A.R, and rightly so, the provisions of Sec. 40A(2)(a) can be pressed into service by the A.O for carrying out a disallowance, in a case, where the assessee incurs any expenditure in respect of which payments have been or is to be made to any related party as specified in DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd. clause (b) of sub-Section (2) to Sec. 40A, to the extent the expenditure is considered by him to be excessive or unreasonable having regard to the fair market value of the goods, services or facilities for which such payment is made for the legitimate needs of the business or profession of the assessee, or the benefit derived by or accruing to him therefrom. In sum and substance, the scope of the provisions of Sec. 40A(2)(a) is to disallow the excessive or unreasonable component of the expenditure incurred by the assessee in respect of which payments have been or is to be made to a related party therein specified. Apart from that, the basis for gauging the excessiveness or unreasonableness of such expenditure incurred by the assessee in respect of related parties has to be carried out in the backdrop of the fair market value of the goods, services or facilities for which the payment is made. We find that the A.O by misconstruing the scope and gamut of Sec. 40A(2)(a) had disallowed the entire amount of the directors remuneration. In our considered view, the aforesaid disallowance carried out by the A.O by pressing into service the provisions of Sec. 40A(2)(a), therein principally suffer from two serious infirmities, viz. (i). that the A.O had lost sight of the fact that the disallowance of the related party expenditure u/s 40A(2)(a) could have been made only to the extent the same was found to be excessive or unreasonable; and (ii). that as per the mandate of Sec. 40A(2)(a) the A.O remained under a statutory obligation to benchmark the excessiveness or unreasonableness of the expenditure keeping in view the fair market value of the goods, services or facilities for which the payment was made or was to be made to the specified related party. In the backdrop of our aforesaid observations, we are of the considered view that the A.O had traversed beyond the jurisdiction that was vested with him u/s 40A(2)(a) of the Act. Our aforesaid view is supported by the order of the Tribunal in the case of Nat Steel Equipment (P) Ltd. Vs. DCIT (2018) 195 TTJ 0796 (Mumbai). Be that as it may, in the backdrop of our aforesaid deliberations, we are of the considered view that the remuneration aggregating to Rs. 3.63 crores paid by the assessee to its directors can by no means be stamped as exorbitant, and therein disallowed by invoking the provisions of Sec. 40A(2)(a) of the Act. As such, finding no infirmity in the view taken by the CIT(A) in context of the aforesaid issue under consideration, we uphold his order therein vacating the disallowance of Rs. 3.63 crores made by the A.O u/s 40A(2)(A) of the Act. The Ground of appeal No. 1 is dismissed.

10. The Grounds of appeal Nos. 3 & 4 being general in nature are dismissed as not pressed.

DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd.

“We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”. In the rule so framed, as a result of these directions, the expression “ordinarily” has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether or not the passing of this order, beyond a period of ninety days in the case before us was necessitated by any “extraordinary” circumstances.

DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd.

Mumbai Vs. JSW Limited & Ors. [ITA No. 6264/Mum/18; dated 14/05/2020, wherein it was observed as under:

“Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon’ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. The epidemic situation being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon’ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitation expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown”. Hon’ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus “should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure…”. The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled’ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary” period.

DCIT-15(2)(1) Vs. M/s Kalsha Builders Pvt. ltd.

We have given a thoughtful consideration to the aforesaid observations of the tribunal and finding ourselves to be in agreement with the same, therein respectfully follow the same. As such, we are of the considered view that the period during which the lockout was in force shall stand excluded for the purpose of working out the time limit for pronouncement orders, as envisaged in Rule 34(5) of the Appellate Tribunal Rules, 1963.

Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.