What did the Tribunal hold?

The Tribunal set aside the orders of the lower authorities and remanded the matter back to the Assessing Officer. The assessee is to be given an opportunity to produce the necessary bills and vouchers to substantiate the capitalized expenses.

The assessee capitalized expenses of Rs. 32.74 crore as capital work in progress for a hotel construction project. The Assessing Officer disallowed 1/5th of these expenses on an estimated basis due to the assessee's failure to furnish supporting details.

What were the issues?

Whether the disallowance of capitalized expenses on an estimated basis was justified without disputing the expenses themselves and without providing an opportunity to the assessee to produce supporting documents.

M/S. Global Heritage Venture… vs DCIT | ITAT Delhi 2019

Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI

Before: SHRI KULDIP SINGH & SHRI A.N.MISSHRA

For Respondent: Smt. Aparna Karan, CIT- DR

Hearing: 19.02.2019

PER KULDIP SINGH, JUDICIAL MEMBER :

The appellant Global Heritage Venture Ltd. (hereinafter referred to as 'the assessee') by filing the aforesaid appeal, sought to set aside the impugned order dated 22/12/2014 passed by Ld. Commissioner of Income Tax(A)-XXIV, New Delhi qua the Assessment Year 2010-11 on the grounds inter alia that :

“1. The CIT(A) has erred on facts and in law in holding that the capital work in progress to the extent of Rs. 6,54,85,016/- would be reduced whenever any depreciation is claimed on the asset to be created or whenever the asset is ultimately transferred.

The Ld. CIT(A) has erred in giving credence to the observations of the assessing officer in spite of grave non application of mind pointed out by the appellant in its submissions.

The Ld. CIT(A) has erred in upholding disallowance of 1/5th of the expenses made by the assessing officer on estimate basis wholly on assumptions & presumptions without pointing out any mistake whatsoever in the books of accounts maintained by the appellant which were duly audited.

4. The appellant craves for liberty to add fresh ground(s) of appeal and also to amend, alter, modify any of the grounds of appeal.”

2. Briefly stated that facts necessary for adjudication of the controversy at hand are : the assessee company is into the business of construction of Five Star Hotel. It is the case of the assessee that due to slowdown in the construction activities because of recession in the real estate market, the construction activities was continued and expenses of Rs. 32.74 crore incurred in respect of development of project has been capitalized as capital work in progress. On failure of the assessee to furnish detail of expenses i.e. bills, vouchers, purchase book, ledger A/c etc. to prove the expenses capitalized during the year under assessment AO disallowed 1/5th of such expenses on estimated basis and thereby made an addition of Rs. 6,54,85,016/- and assessed the total income f Rs. 6,69,3,140/-.

3. Assessee carried the matter before Ld. CIT(A) by way of filing the appeal who has given part relief by partly allowing the appeal. Feeling aggrieved the assessee has come up before the Tribunal by way of filing the present appeal.

We have heard the ld. DR for the revenue and gone through the order passed by the lower revenue authority.

Undisputedly the assessee has capitalized Rs. 32.74 crore out of expenses debited to P & L Account under the head “less expenses transferred to capital work in progress”. However, the AO has disallowed 1/5th of such expenses on failure of the assessee to furnish details of such expenses which bill, vouchers purchase books ledger account etc. on estimated basis.

However, it is case of the assessee that the entire detail of financial break up was there in the schedule forming part of the P & L Account as on 31.03.2011 available at page 21 of the paper book.

Perusal of the assessment order as well as impugned order passed by the Ld. CIT (A) go to prove that the Assessing Officer has not disputed the expenses otherwise capitalized by the assessee during the year under assessment but has disallowed 1/5th thereof for want of furnishing the bills, vouchers, purchase books, ledger account etc.

When we examine this facts in the light of the fact that the assessee initially appeared before the AO and filed certain details with the AO but subsequently none-appeared on behalf of the assessee to assist the AO to reach the logical conclusion. So in these circumstances, we are of the considered view that when claim of the expenses capitalized by the assessee has otherwise not been disputed by the AO who has proceeded to disallow 1/5th thereof on the basis of estimation, opportunity is required to be given to the assessee to produce the bills, vouchers, purchase books, ledger account etc. to prove the expenses capitalized in the interest of justice.

In view of what has been discussed above, impugned order passed by AO/Ld. CIT(A) is set aside and remanded back to the Assessing Officer to decide afresh after providing opportunity of being heard to the assessee. Consequently appeal filed by the assessee is allowed for statistical purposes. Order pronounced in open court on this 25th February, 2019.

M/S. GLOBAL HERITAGE VENTURE LTD.,NEW DELHI vs. DCIT, NEW DELHI

What did the Tribunal hold?

What were the facts?

What were the issues?

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