Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI RAJESH KUMAR (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
The revenue has filed the present appeal against the order dated 28.12.2018 passed by the Commissioner of Income Tax (Appeals)-20 (for short „the CIT(A), Mumbai, for the assessment year 2010-11, whereby the Ld. CIT(A) has partly allowed the appeal filed by the assessee against the assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short the „Act‟).
Brief facts of the case are that the assessee company carrying on the business as builders and developers, filed its return of income for the assessment year under consideration declaring total loss at Rs. 79,068/- The return was processed u/s 143 (1) of the Act. The case was selected for scrutiny and the AO passed assessment order u/s 143 (3) of the Act determining the total income of the assessee at Rs. 5,14,93,220/-. The AO made addition of Rs. Assessment Year: 2010-11 5,12,64,274/- on account of profit from project, computed on the basis of percentage completion method rejecting the project completion method followed by the assessee, addition of Rs. 72,782/- under the head income from other sources and addition of Rs. 1,56,192/- under the head income from maintenance and other charges. The assessee challenged the assessment order before the CIT (A). The Ld. CIT (A) after hearing the assessee partly allowed the appeal filed by the assessee. Aggrieved by the order of the Ld. CIT(A) the department is in appeal before this Tribunal. 3. The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:- “i). Whether on the facts and in circumstances of the case and in law, the Ld. CIT (A) has erred in holding that the AO did not have jurisdiction to make adjustment to WIP without appreciating the fact that during the year there was no adjustment to the WIP and only the adjusted WIP of earlier years has been considered for determining the profits from the business for the year. ii). Whether on the facts and in circumstances of the case and in law, the ld. CIT (A) has erred in directing to exclude the profits considered in earlier years on the basis of percentage completion method ignoring the fact that the percentage completion method for recognition of the profits have not been accepted by the assesse and the matter is pending before the ITAT for adjudication.”
The revenue has challenged the action of the Ld. CIT (A), in holding that the AO had no jurisdiction to make adjustment to work in progress (WIP) without appreciating the fact that during the year under consideration there was no adjustment to WIP the only adjusted the WIP of earlier years has been considered for determining the profits of the business for the year. The Ld. Departmental Representative (DR) submitted before us that during the financial year 2000-01 the assessee company had increased its WIP by Rs. 1,63,36,933/-on account of claim in terms of consent decree and during the FY 2003-04 WIP was increased by Rs. 60,68,627/- on account of interest to banks as per order of the Debt Recovery Tribunal (DRT). The AO reduced the said Assessment Year: 2010-11 amounts holding that these expenses cannot be included in WIP as the same do not increase the value of WIP. The Ld. DR further submitted that since the aforesaid decree and interest rate are penal in nature and have been charged from the assessee company for failure to complete its commitments, the AO had rightly disallowed the same. Hence, the Ld. CIT(A) has wrongly held that the AO had no jurisdiction to disallow those addition to WIP in the assessment year under consideration.
On the other hand, the Ld. counsel for the assessee supporting the order passed by the Ld. CIT (A) submitted that since the addition of Rs. 1,63,36,993/- was made in the FY 2000-01 and the addition of Rs. 60,68,627/- was made in the FY 2003-04, the Ld. CIT (A) has rightly set aside the findings of the AO. The Ld. counsel further pointed out that the ITAT Mumbai has decided the identical issue in favour of the assessee in assessee‟s case for the assessment year 2012-13. Since the findings of the Ld. CIT(A) are in accordance with the findings of the jurisdictional Tribunal, there is no infirmity in the order of the Ld. CIT (A). 6. We have heard the rival submissions of the parties and perused the material on record including the common order dated 06.06.2019 passed by the coordinate Bench in revenue‟s appeals for AY 2008-09 and ITA No. 2327/Mum/2018 for AY 2012-13. The Ld. CIT (A) has decided this issue in favour of the assessee holding as under:-
“7.4.1 I have considered the order of the AO and submissions made by the appellant. I find from Para 7.3 of the assessment order that the additions to WIP which hare the subject matter of this appeal do not relate to the relevant previous year. The AO has himself observed in the order that the addition of Rs. 1,63,36,993/- was made in the F.Y. 2000- 01 and the addition of Rs. 60,68,627/- was made in the F.Y. 2003-04. Therefore, in my view, the AO did not have jurisdiction to disallow those additions to the WIP in the assessment order for AY 2010-11. I accordingly, I allow ground of appeal
No. 5 & 6.” Assessment Year: 2010-11
7. As pointed out by the Ld. counsel assessee had made provision during the financial year (FY) 2000-01 in respect of claim made by UCO Bank as per the consent terms filed before the DRT. The assessee sold the premises to the Bank and claim of Rs. 1,63,36,993/-was adjusted against the sale proceeds receivable from UCO Bank. Similarly, in the FY 2003-04, the assessee paid interest amounting to Rs. 60,68,627/- to Canara Bank as per the order of the DRT. The assessee added the said amount to WIP. The AO reduced WIP to the extent of the said amount. However, The Ld. CIT (A) has set aside the findings of the AO holding that since the addition of Rs. 1,63,36,993/- was made in the FY 2000-01 and addition of Rs. 60,68,627/-was made in the FY 2003-04, the AO had no jurisdiction to disallow the additions to WIP in the assessment year under consideration.
8. Further, as pointed out by the Ld. counsel, the issue raised by the revenue has been decided by the “A” Bench of the Mumbai Tribunal in revenue‟s appeal for the AY 2012-13 in assessee‟s case. In the assessment year 2012-13 the AO made the similar disallowance. However, in the first appeal, the Ld.CIT (A) allowed the assessee‟s appeal and decided the issue in favour of the assessee. The revenue challenged the order passed by the Ld. CIT (A) before the ITAT. The ITAT upheld the findings of the Ld. CIT (A) holding as under:- “6. Briefly stated facts are that the assessee is carrying on the business of builders and developers. The assessee is following the method of accounting i.e. completing contract method for declaring profit from its construction project (known as Arcade International) situated at Jaipur. The project was started in 1987 and claimed to be incomplete till the date of assessment. The facts are that the assessee company is following the project completion method and the same has been rejected in the preceding year and percentage method has been applied for computing the profit of the assessee company. The AO also noted that for the year under consideration, activities remains the same as they were in earlier years and there is no progress in the construction activity of the assessee. The AO noted that to arrive at a correct work in progress of the above stated project, it is Assessment Year: 2010-11 necessary to examine the work in progress of the preceding years. He noted that the revised work in progress was computed for the assessment years 2008-09 and 2010-11 and following the same method, the work-in-progress of the year under consideration is computed accordingly. The AO noted that during the FY 2000-01 relevant to AY 2001-02, the assessee’s company has increased its work in progress by an amount of ₹ 1,63,36,933/- on account of claim in terms of consent decree. In FY 2003-04 relevant to AY 2004-05, the assessee company has increased its work in progress by a sum of ₹ 60,68,627/- on account of interest to banks as per the order of DRT. It is also noted by the AO that Canara Bank and UCO Bank has booked premises aggregating to 35,360 sq. feet of year in the assessee’s project and due to delay in the project and other legal issues they have demanded refund of advance given by them along with interest. Hence, the assessee has wrongly included the aforesaid expenses in work in progress. The AO therefore, noted that the aforesaid expenses cannot be included in the work in progress as the amount does not in any way increase the value of work in progress. Thereby, he reduced the sum from work in progress of the assessee. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) considered the issue and allowed the issue in favour of assessee by observing in Para 6.4 as under: - “6.4.1 I have considered the order of the AO and submissions made by the appellant. I find from Para 6.3 of the assessment order that the addition is to WIP which were disallowed by the AO does not relate to the relevant previous year. The AO has himself observed in the order that the addition of ₹ 1,63,36,993/- was made in the FY 2000-01 and the addition of ₹ 60,68,627/- was made in the FY 2003-
04. Therefore, in my view, the AO did not have jurisdiction to disallow these addition to the WIP in the assessment order for AY 2012-13. Accordingly, I allow this ground of appeal.” Aggrieved, now Revenue is in appeal before Tribunal.
7. Now, before us, learned Sr. Departmental Representative relied on the assessment order but could not controvert the findings of the CIT(A). On the other hand, the learned Counsel for the assessee stated that this addition to the work in Assessment Year: 2010-11 progress to AYs 2001-02 and 2004-05 and not to the relevant AY under consideration i.e. AY 2012-13. In any case, if at all the addition of this sum is to be made, the same can be made in those assessment year i.e. AYs 2001-02 and 2004-05. We are in agreement with the learned Counsel for the assessee and are of the view that this issue does not pertain to this year. The CIT(A) has rightly allowed the claim of the assessee and hence, this issue of Revenue’s appeal is dismissed.”