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Income Tax Appellate Tribunal, “E”
Before: SHRI S. RIFAUR RAHMAN, AM & SHRI RAVISH SOOD, JM
M/s Eleganza Furnishing DCIT – 4(1)(2), Pvt. Ltd. Room No. 640, 6th floor, बिधम/ Office No. 46, 4th floor, Aayakar Bhavan, M. K. Vs. Nariman Bhavan, Nariman Road, Mumbai-400 020 Point, Mumbai- 400 021 स्थायीलेखासं./जीआइआरसं./PAN No. AAACE7437L (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant : Shri Amit Pratap Singh, DR by प्रत्यथीकीओरसे/Respondentby : Shri D. V. Lakhani, AR सुनवाईकीतारीख/ : 17.10.2019 Date of Hearing घोषणाकीतारीख / : 25.10.2019 Date of Pronouncement आदेश / O R D E R
Per S. Rifaur Rahman, Accountant Member:
The present Appeal has been filed by the revenue against the order of Ld. Commissioner of Income Tax (Appeals) - 9 in short referred as ‘Ld. CIT(A)’, Mumbai, dated 30.06.17 for Assessment Year (in short AY) 2013-14.
M/s Eleganza Furnishing Pvt. Ltd.
The brief facts of the case are that assessee filed its return of income for AY 2013-14 on 20.09.13 declaring total income at Rs. 3,68,50,700/-. The case was selected for scrutiny under Cass and notice u/s 143(2) and 142(1) of the Act were issued and served on the assessee. In response, AR of the assessee filed the relevant information as called for.
During the assessment proceeding, AO observed that assessee has sold shop premises at Unit No. 106, B Wing, Prathamsh Tower, Raghuvanshi Mill Compound, Lower Parel (w), Mumbai-400 013 and shop is having carpet area of 720 Sq. Ft. with one open car parking and the above property was purchased on 5th Jan 2008 for a total consideration of Rs. 1,23,00,000/- and assessee has sold the above property on 14.08.12 for a total consideration of Rs. 1.60 crores. AO further observed that assessee has declared long term capital gain computed as below:- Sale consideration = 1,60,00,000/- Indexed Purchase cost (1,30,18,000 x 852 /551) = 2,01,29,466/- Capital gain (-) = 41,29,466/-
M/s Eleganza Furnishing Pvt. Ltd.
AO further observed that assessee has claimed depreciation on factory building and office premises. Even though it has let out the factory building and office premises. Since the assessee has claimed depreciation on the building which are given on rent and also on the building held by it, therefore the building block is business assets and profit on transfer of business assets is liable to be treated as short term capital gain chargeable at normal rate.
After considering the documents submitted by assessee and explanation about the transfer of shop at Prathmesh Tower, AO treated the above property as undisclosed and unrecorded in the books of the assessee on the date of purchase. Accordingly, the entire sale consideration recorded have to be treated as income from other sources and no benefit of indexation is to be allowed. Accordingly, he made the addition of Rs. 1.60 crores as undisclosed income of the assessee.
Further, AO verified the expenses of the assessee and compared this expenditure with previous AY and he noticed that various expenses incurred during the year compared to previous
M/s Eleganza Furnishing Pvt. Ltd.
AY is excessive and unreasonable. He listed various expenditure at page no. 42 of the assessment order as per which, assessee has incurred Rs. 4,20,18,339/-, whereas assessee has incurred Rs. 3,18,38,983 in the previous assessment year. Therefore, there is net increase of Rs. 1,01,79,356. After considering the submission of the assessee and according to AO, the expenses incurred by the assessee are excessive and he allowed increase of 20% of the net increase of the expenditure. Accordingly, he disallowed Rs. 81,43,848/-.
Aggrieved with the above order, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A), after considering the submission of the assessee, deleted the additions made by AO with the following observations:-
7.3. I have considered the stand of the AO in the assessment order as well as the submissions of the AR of the appellant. The appellant had disclosed in the computation of income the long term capital loss in respect of transfer of office premises. The details of the office premises are being office No, 103, Prathamesh Tower, Raghuvanshi Mill Compounds, Lower Parel, Mumbai - 400 013 which was sold for a consideration
M/s Eleganza Furnishing Pvt. Ltd. of Rs. 1,60,00,000/- vide agreement dated 14/8/2012. In the books of accounts as well as the audited financial statements up to 31/3/2012 the said asset which duly reflected. In the schedule of the fixed asset also the said office premises situated at Prathamesh Tower is duly reflected as on 31/3/2012. The copies of the purchase and sale agreement in respect of the said property are also support the fact that the said transaction was duly reflected in the books of accounts. The AO, though in the assessment order has referred to various other documents and other material the main issue being that the property which is sold is disclosed in the books of accounts as well as disclosed in the computation of income while filing the return of income has not been contradicted. The AO has also taken the sale consideration of Rs. 1,60,00,000/- being the amount received by the appellant and credited in the books of account as the undisclosed income. The AO himself in para 4.11 has computed the long term capital loss in respect of the said property at Rs. 39,70,200/-. On one hand, he is computing the long term capital loss on the sale of the same property considering the sale consideration at Rs. 1,60,00,000/- and at the same time he is taxing the said consideration of Rs. 1,60,00,000/- as undisclosed income. From the facts and the evidences produced by the appellant
M/s Eleganza Furnishing Pvt. Ltd. before the AO as well as before me it is apparent that the said property were disclosed in the regular books of accounts and also the sale proceeds are duly reflected in the books of accounts and the appellant had voluntarily offered the long term capital gains (loss) and sale of this property. I therefore hold that the addition made by the AO amounting to Rs. 1,60,00,000/- treating the same as income from undisclosed source is not justified and he said addition is deleted.
Similarly on disallowance of unreasonable increase in expenses amounting to Rs. 81,43,848/-, assessee made elaborate submission before Ld. CIT(A) and Ld. CIT(A) after considering the elaborate submission of the assessee, allowed the ground raised by the assessee and deleted the additions with the following observations:-
8.3. I have considered the stand of the AO in the assessment order as well as the submissions of the appellant. The AO has disallowed Rs. 81,43,48/- on the ground that the appellant has not justified in the increase in the expenditure under different heads. The facts are the appellant is a manufacturer of curtains, fitted sheets, cushion covers, pillow cases etc. The M/s Eleganza Furnishing Pvt. Ltd. appellant maintains regular books of accounts which are audited. The major sales of the appellant are export sales. The correct total of the expenditure identified by the AO for A.Y. 2013-14 Rs. 2,88,54,932/- in place of Rs. 4,20,18,339/-. Similarly, the correct total expenditure identified by the AO for A.Y. 2012-13 is Rs. 1,88,80,303/- in place of Rs. 3,18,38,983/-. The AO has wrongly calculated that there is an increase of expenditure of Rs. 1,01,89,356/- in A.Y. 2013-14 as compared to A.Y. 2012-13. He has compared Rs. 4,20,18,339/- with Rs. 3,18,38,983/- and has determined the increase in expenditure at Rs.1,01,89,356/-. The actual increase in expenditure is Rs. 99,74,629/- being the difference between Rs. 2,88,54,932/- for A. Y. 2013-14 and Rs. 1,88,80,303/- for A.Y. 2012-13. The AO thereafter has assumed only 20% of the incremental expenditure of Rs, 1,01,89,356/- should be allowed as deduction and has allowed Rs. 20,37,871/- being 20% of Rs. 1,01,89,356/- and has disallowed the difference of Rs. 81,41,485/-. The expenditure incurred under different heads are supported with bills and other evidences. The payments are made by the account payee cheques to the vendors. The expenditure are incurred in the normal course of business and every year the expenditure has incurred under the similar head of expenditure. In earlier
M/s Eleganza Furnishing Pvt. Ltd. assessment years the claim of the expenditure is always accepted and no disallowances have been made. The appellant has submitted a comparative chart of the turnover and the expenditure incurred. The total turnover in A.Y. 2013-14 is Rs. 33.18 crores as compared to the total turnover in A.Y. 2012-13 at Rs. 28.73 crores. The appellant has also established that the ratio of the expenditure identified by the AO as compared to the sales for A.Y. 2013-14 is 8.69% as compared to ratio of the expenditure in A.Y. 2012-13 at 6.57%. The AO has not brought on record any evidence to prove that expenditure incurred by the appellant is non-genuine, or inflated or is not incurred in the regular course of business. The AO has made the addition ignoring the past records of the appellant The AO has estimated the expenditure to be disallowed without having any base or material. As against this the appellant has established that the expenditure is incurred is genuine and is supported with the evidences and proofs. I therefore delete the adhoc and estimated disallowance made by the Assessing Officer amounting to Rs. 81,43,484/-.
Aggrieved with the above order, revenue has preferred the appeal before us on the grounds mentioned herein below:-
M/s Eleganza Furnishing Pvt. Ltd.
1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to delete the addition of Rs.1,60,00,000/- treating the same as income / loss under the head capital gain without appreciating the fact that purported assets acquired by the assessee in F.Y.2007-08 is not duly accounted for and reflected in the financials of the assessee company in the year of acquisition itself."
2. "'On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the claim of the assessee without appreciating the fact that the assessee has simultaneously claimed depreciation @5% as well as deduction u/s 24 against the rental income derived from the property."
3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to delete the addition of Rs.81,43,484/- on account of inflated expenses without appreciating the fact that the assessee company has failed to furnish any details and substantiate the genuineness of expenses claimed during assessment proceedings even after having ample opportunities."
4. "The appellant craves leave to amend or alter any ground or add new ground which may be necessary."
M/s Eleganza Furnishing Pvt. Ltd.
Before us, Ld. DR submitted that Ld. CIT(A) has deleted the addition of Rs. 1.60 crores without appreciating the fact that assets purchased by the assessee in FY 2007-08 is not duly accounted for and not reflected in the financial record maintained by the assessee in the year of acquisition itself. He further submitted that assessee had made depreciation on the property in which assessee has derived rental income from the property and also claimed deduction u/s 24 of the Act.
With regard to deletion of unreasonable increase in expenses, he submitted that assessee has failed to furnish details of such increase and failed to substantiate the genuineness of the expenditure claimed by the assessee, even though assessee was given ample opportunities and he strongly relied upon the orders passed by the AO.
On the other hand, Ld. AR submitted that AO has treated the sale of the property which was given on rent over the years and the same was declared as income from the house property. He further submitted that AO has wrongly treated the said property as undisclosed property and assessee has not recorded
M/s Eleganza Furnishing Pvt. Ltd. the purchase of the property on the date of purchase itself. Further, he brought to our notice at para no. 4.11 at page no. 13 of the assessment order in which, AO himself determined the capital loss of Rs. 39,70,200/- by considering the sale consideration of Rs. 1.60 crores. This is nothing but double standard of the AO treating this sale consideration as undisclosed income. Further, he brought to our notice at page no. 3 of the paper book, in which AO has disallowed the depreciation debited to profit and loss account for the value of Rs. 20,47,085/- and he also brought to our notice the assessee has claimed depreciation of Rs. 11,20,863/- based on Income Tax Act (in Schedule 7). Further he brought to our notice the calculation of capital gains declaring in the return of income at page no. 6 of the paper book and submitted that in determining the capital gains, assessee has declared the cost of purchase at Rs. 1,30,18,000/-, break up which is given at page no. 141 of the paper book and all these transactions are very much part of the books maintained by assessee. He supported the finding of Ld. CIT(A) at para 7.3 of the order.
M/s Eleganza Furnishing Pvt. Ltd.
With regard to disallowance of expenditure, he brought to our notice at page no. 42 of the assessment order in which AO has tabulated various expenditure incurred by the assessee during this year as well as previous assessment year and AO has observed that there is increase of Rs. 1,01,17,356/-. He further submitted that the figure adopted by the AO is in fact not correct and he brought to our notice at page no. 276 of the paper book in which, assessee has tabulated the total expenditure of this AY and previous two AYs. As per the above table, the expenditure incurred by the assessee is only 5.92% over sales, whereas AO strangely allowed the expenditure of 20% of the incremental expenditure over previous assessment years, which has no basis. Therefore, he submitted that as per the chart at page no. 276 of the paper book, it is clear that the expenditure incurred by the assessee is very reasonable and the expenditure in consonance with the sales achieved by the assessee and further he supported the finding of Ld. CIT(A).
Considering the rival contentions and material placed on record, we notice that the assessee has sold the office premises at M/s Eleganza Furnishing Pvt. Ltd.
Prathama Towers, Lower Parel, Mumbai for Rs. 1.60 crores. This property was part of assets, which are declared in the balance sheet. Assessee was regularly claiming depreciation on the assets in the P & L account. However, for the purpose of income tax, assessee disallowed the depreciation as per P & L account and claimed as per the block of assets only for the assets used in the business. The particular office building, which is under consideration are given on rent and such rents are offered to tax under the head ‘Income from house property’. On evaluation, it is noticed that the procedure of declaring the income under I.T. Act and claiming depreciation are in order. The AO opined that these assets were not recorded in the books, as brought to our notice and the books are audited, there is no possibility that the assets sold are not part of assets schedule and the respective incomes are declared in the ROI and P & L account.
After considering the submission of Ld. AR and information submitted before us, we are inclined to accept the findings of Ld. CIT(A), accordingly ground raised by the revenue is dismissed.
M/s Eleganza Furnishing Pvt. Ltd.
With regard to disallowance of expenditure, we notice that AO has disallowed 80% of the incremental expenditure over the expenditure of previous year. Further AO has not substantiated the reasons for such disallowance and basis for adopting the percentage for disallowance and he has not substantiated how these expenses are not genuine and not incurred for the purpose of business. The assessee has submitted a tabulated expenditure chart as per which the expenses incurred by assessee during this year is 5.92 % over the sales whereas during the previous year, it was 8.69% over the sales. The expenditure incurred by the assessee are in consonance with the turnover of the business. Therefore, we are inclined to accept the findings of Ld. CIT(A) in this regard and accordingly, ground raised by the revenue is dismissed.