Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI
Before: SHRI PAWAN SINGH & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 2013-14. The appeal is directed against the order passed by the Pr. Commissioner of Income Tax-8 Mumbai [in short ‘Pr. CIT’] u/s 263 of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal filed by the assessee read as under: A. In the facts and circumstances of the case and in law, the Ld. CIT has erred in setting aside the assessment order, on account of claim of expenses of Rs.1,73,26,600/- relating to payments to tenants for rent and shifting charges.
B. In the facts and circumstances of the case and in law, the Ld. CIT erred in setting aside the assessment order, when the Ld. AO had conducted sufficient inquiries on the issue of payments to tenants for rent and shifting charges. C. In the facts and circumstances of the case and in law, the Ld. CIT erred in setting aside the assessment order, when the Ld. AO had applied his mind on the issue of payments to tenants for rent and shifting charges and chose not to make any addition. D. In the facts and circumstances of the case and in law, the Ld. CIT erred in setting aside the assessment order, when the payments to tenants for rent and shifting charges have not been debited to the profit and loss account and rather form part of the work-in-progress, resulting in no error or prejudice to the interests of the Revenue, and in no way relates to the current year at all. E. In the facts and circumstances of the case and in law, the Ld. CIT erred in setting aside the assessment order on the ground that in the subsequent years the Revenue would not be able to scrutinize the work-in-progress, thereby causing detriment to the Appellant for no fault. F. In the facts and circumstances of the case and in law, the Ld. CIT erred in setting aside the assessment order, by disregarding agreements, proof of payments, and submissions on merits relating to the issue which clearly establish the genuineness and correctness of the claim relating to payments to tenants for rent and shifting charges.
Briefly stated, the facts are that the assessee filed its return of income for the assessment year (AY) 2013-14 on 30.09.2013 declaring total income of Rs.52,200/-. The Assessing Officer (AO) completed the assessment u/s 143(3) on 28.03.2016 determining the total income at Rs.2,11,35,700/-. On perusal of the assessment records, the Pr. CIT observed that the order dated 28.03.2016 passed by the AO is erroneous in respect of the following issue: “The assessee company is engaged in the business of property development and development project. It is seen from the individual agreement and redevelopment agreement that the assessee has agreed to pay Rs.7500 per month to 118 member and 6000 as one time shifting charges. Assessee also stated it will pay rent of 12 months in advance and a 10% raise in rent after a period of 12 months. As per shifting agreement which was made on 8th July 2012, the assessee paid 8000/- + 6000 = 14800 as rent and shifting charges. However, in P&L account assessee has claimed shifting expenses as 1,73,26,600/-. Even after considering amounts as per shifting agreement as 8800 rent paid for 12 months and 6000 being shifting charges the amount comes as 1,31,68,800 i.e. (8800 x 12 x 118 = 1,24,60,800) + (6000 x 118 = 7,08,000) as against 1,73,26,600/- as claimed by the assessee. Thus the assessee claimed an amount of Rs.41,57,800/- as excess towards rent and shifting expenses which needs to be added back. Failure to do so has resulted into under assessment of 41,57,800 i.e. (1,73,26,600 – 1,31,68,800), which led to short levy of tax of 17,47,274 (30% of 41,57,800 being 12,47,340 + 3% being 37,420 and 234B being 462514).” In response to the show cause notice dated 15.03.2018 issued by the Pr. CIT, the assessee filed a reply dated 22.03.2018 which has been extracted at page 2-4 of the impugned order. However, the Pr. CIT was not convinced with the said reply of the assessee for the reason that the AO has not made any inquiry regarding difference of rent and shifting charges claimed to have been paid by the assessee to the individuals as recorded in the books of accounts vis-a-vis as mentioned in the individual agreement. Further, it is observed by him that while the proceedings started with reconciling claim of Rs.1,73,26,600/- as against reduced liability of Rs.1,31,68,800/- the actual expenses claimed are put at Rs.2,10,07,200/-. Also it is observed by him that the lump sum payment of Rs.50,000/- is a new item and is to be established with agreement/basis and shown to have been paid. Thus it is held by him that the inflated work-in-progress has bearing in the taxable income in the subsequent year, in which income out of deposit is declared. At that time, the WIP having been already scrutinized in the year of expenses, could not be verified. Thus observing that inflation of the expenses are prejudicial to the interests of the revenue, even if these are in WIP and not debited current year P&L account, the Pr. CIT set aside the assessment to the extent of the issues/grounds mentioned above and directed the AO to make an assessment afresh after giving due opportunity to the assessee-company and recalculate the tax in interest.
Before us, the Ld. counsel of the assessee files a Paper Book (P/B) containing (i) Copy of CIT order u/s 263 dated 23.03.2018, (ii) Show- cause notice u/s 263 dated 15.03.2018, (iii) Reply to notice u/s 263 dated 22.03.2018, (iv) Reply to notice u/s 142(1) dated 15.09.2015 along with the relevant annexures, reply to notice u/s 142(1) dated 15.01.2016 along with the relevant annexures, (v) (a) Sample of an Individual Agreement dated 15.02.2011, (b) Sample of a Redevelopment Agreement dated 11.02.2011, (c) Sample of a Shifting Agreement dated 08.07.2012, (vi) Reply to notice u/s 142(1) dated 28.01.2016 along with the relevant annexures and (vii) Reply to notice u/s 142(1) dated 11.02.2016 along with the relevant annexures. Further, the Ld. counsel submits that the assessee had undertaken the redevelopment project as long back as in 1997. The project completed the demolition of the existing structure and construction of three new buildings (Rehab Building, Amenities Building and The New Building). The original occupants of the building were to be given flats in the Rehab Building, and also given certain payments which included shifting charges, rent for alternate accommodation and compensation to vacate the flats. Totally, there were 118 occupants in the earlier building. However, not all the occupants agreed with the assessee and even today, the assessee has been able to strike an agreement with only 108 occupants. Such redevelopment projects are prone to disputes and this is evident from the fact that even today the construction work is stalled because of certain occupants who have not agreed with the redevelopment terms. The total amounts paid to them included : (i) monthly rent for alternate accommodation – Rs.8,800/- per month, (ii) One-time shifting charges- Rs. 14,800/- (iii) One-time compensation to vacate the flats to be payable on shifting –Rs.50,000/-. It is stated by him that on the basis of above understanding, a total amount of Rs.1,73,26,600/- was paid to 108 occupants through cheques, and acknowledgement of the receipt of money was taken from them through a stamped receipt. This amount was not debited to the P&L account but was rather treated as work-in-progress (WIP). The Ld. counsel submits that the following evidences were submitted and examined by the AO during the course of assessment proceedings: (i) sample individual agreement and shifting agreement, (ii) details of WIP for the year under consideration, (iii) SBI banks statement of proof of payment to the occupants, (iv) party-wise details of capital WIP (v) year-wise details of capital WIP from FY 2009-10 to 2012-13 (vi) audited financials. The Ld. counsel thus submits that after due consideration of the above evidences and raising sufficient number of queries on the issue of payments made to the occupants, the AO reached the conclusion that the expenses were genuine and thus, he has not given any adverse finding in the assessment order. In either case, no addition to be made to the return of income since the amounts paid were not claimed as deductible in the P&L account. The Ld. counsel submits that the Pr. CIT issued the show cause notice u/s 263 under the erroneous belief that the amounts had been debited in the P&L account and hence the surplus claim had to be added back to the income. It is stated by him that the assessee pointed out this mistake in its reply dated 22.03.2018. The Pr. CIT accepted this but concluded that even if it is not debited to the P&L account, it should be taken as an error in the assessment order because it might skip the scrutiny in subsequent years. Thus it is stated that the whole basis of the initiation of revision proceedings is based on a factual error. Finally, it is submitted by him that the impugned revision order passed by the Pr. CIT be set aside.
Per contra, the Ld. DR submits that the assessee claimed an amount of Rs.41,57,800/- as excess towards rent and shifting expenses which needs to be added back. Thus the Ld. DR supports the order passed by the Pr. CIT.
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. A perusal of the record indicates that vide submission dated 28.12.2015, the assessee submitted bank statement of SBI account from which payment of shifting expenses were made to the occupants. Further, vide submission dated 15.01.2016, the assessee submitted sample individual agreement and shifting agreement to comply with the AO’s direction to submit the same during the course of hearing on 28.12.2015. Again the assessee vide submission dated 28.01.2016 filed party-wise details of shifting expenses accumulated under the capital WIP. Also the assessee vide submissions dated 11.02.2016 filed year- wise breakup of capital WIP since FY 2009-10.
From the above, it is crystal clear that the AO after due verification in various stages found that the expenses were genuine. This is evident from the date-wise submission filed by the assessee before the AO. At this moment, we may refer to para 10 of the impugned order passed by the Pr. CIT. It is mentioned therein that the AR of the assessee contented before him that “these expenses have not been claimed in the P&L account and have been capitalized under current asset and therefore, the order of the AO is not prejudicial to the interests of revenue”. However, the Pr. CIT was not convinced with the above explanation of the assessee on the ground that the WIP has bearing in the taxable income in the subsequent year, in which income out of the project is declared. Also it is held by him that the WIP having been already scrutinized in the year of expenses, could not be scrutinized and quantified. Therefore, the Pr. CIT came to a finding that the expenses are prejudicial to the interests of revenue even if they are in WIP and not debited to current year P&L account. From the above para, it is evident that the order passed by the Pr. CIT is not based on material evidence and it was in the nature of roving inquiry. Once it was pointed out by the assessee that these expenses were not claimed in the P&L account, the Pr. CIT shifted to WIP. As mentioned earlier, the assessee has submitted details of WIP before the AO. The AO called the details in different dates and examined it.