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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 5th DAY OF JANUARY 2015
PRESENT
THE HON’BLE MR. JUSTICE N.KUMAR AND THE HON’BLE MR. JUSTICE B.VEERAPPA
I.T.A. NO.224/2009 C/W. I.T.A. NO.688/2009
BETWEEN :
M/s.Dynasty Developers Pvt. Ltd., Rep. by its Director, Narpat Singh Chariara, Embassy Point, No.150, 1st Floor, Infantry Road, Bangalore – 560 001. ...APPELLANT (Common in both)
(By Sriyuths. A.Shankar and Lava, Advs.)
AND :
The Asst. Commissioner Of Income Tax, Circle 11(1), R.P. Building, Nrupatunga Road, Bangalore. …RESPONDENT (Common in both)
(By Sri.K.V.Aravind, Adv.)
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I.T.A. No.224/2009 is filed under Section 260A of the Income Tax Act, 1961, arising out of order dated 21.11.2008 passed in ITA No.1268/BNG/2008, for the Assessment Year 2004-05, praying to :
(i) formulate the substantial questions of law stated therein,
(ii) Allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore Bench `A’ in I.T.A. No.1268/BNG/ 2008 dated 21.11.2008 to the extent it is against the Appellant in the interest of justice and equity.
I.T.A. No.688/2009 is filed under Section 260A of the Income Tax Act, 1961, arising out of order dated 12.06.2009 passed in M.P. No.25/BNG/2009 (In I.T.A. No.1268/BNG/2007), for the Assessment Year 2004- 05, praying to :
(i) formulate the substantial questions of law stated therein,
(ii) Allow the appeal and set-aside the order passed by the Income Tax Appellate Tribunal, Bangalore Bench, Bangalore in M.P. No.25/BNG/2009 (In I.T.A. No.1268/ BNG/2007) dated 12.06.2009 in the interest of justice and equity.
These I.T.As. coming on for admission and hearing respectively,, this day, N.Kumar J., delivered the following:
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JUDGMENT
The assessee has preferred these two appeals. I.T.A. No.224/2009 is against the order passed by the Tribunal rejecting his appeal. The assessee filed an application for rectification, which application was also dismissed, as against which, he has preferred I.T.A. No.688/2009. Therefore, the subject matter of both the appeals being one and the same, they are taken up for consideration together and disposed of by this common order.
The assessee is a company engaged in the business of construction. The assessee filed its return for the year 2004-05 declaring the income of Rs.5,58,10,688/-. The return of the assessee was selected for scrutiny. The assessing authority passed an order on 27.12.2006 and computed the total income of the assessee at Rs.6,23,19,469/-. The assessee preferred an appeal against this order to the
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Commissioner of Income-tax (Appeals)-I, Bangalore. The appeal was partly allowed on 15.10.2007. The First Appellate Authority, confirmed the findings of the Assessing Authority relating to the issue of disallowance of expenditure relating to Embassy Victoria project and allowed the claim of expenditure relating to belated payment of PF.
Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal affirmed the order of the Appellate Authority and dismissed the appeal. Aggrieved by the said order, the assessee filed an application for rectification, which also came to be dismissed. Against those two orders, the present two appeals are filed.
The substantial questions of law that arise for our consideration in these appeals are as under:
(1) Whether the Tribunal was justified in upholding the disallowance, when such
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expenses were no claimed by the Appellant as an allowable expenses but were capitalized in the long term investment account under Victoria project and consequently gave a perverse finding?
(2) Whether the Tribunal was justified in law in confirming the disallowance of items which were already capitalized on the facts and circumstance of the case?
The Tribunal, after looking into the accounts has categorically held that as seen from the balance sheet, the assessee has shown a sum of Rs.6,65,44,723/- as long term investment in Embassy Victoria Project as on 31.03.2003 which increased to Rs.14,48,91,721/- as on 31.03.2004, which is the previous year relevant to the assessment year under appeal. Further, the ledger account for “Building under construction-Victoria” shows the opening balance at Rs.6,65,44,722, to which is added “Closing Work in
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progress” of Rs.6,76,73,256/- with the narration “being Victoria Project expenses capitalized”. The said entry was made on 31.03.2004. From the aforesaid entries, it is clear that the expenses to the extent of Rs.6,76,73,256/- have been taken out of the closing work in progress and debited to the ledger account titled “building under construction – Victoria” which in turn means that the Victoria project has not been treated by the assessee as stock in trade or business asset. The project has been unequivocally treated by the assessee as a long term investment but assessee has transferred a sum of Rs.64,31,108/- to the “Building under construction–Victoria” account. The assessee had not claimed Rs.64,31,108/- as business or Revenue expenditure in computing the profits of the assessee. However, the authorities proceeded on the assumption that the assessee is claiming the said amount as Revenue expenditure, disallowed the same and added the same to the cost of the investment. If the assessee
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had claimed the said amount as Revenue expenditure, after debiting the said amount to the “Building under construction-Victoria” account, the authorities were justified in disallowing the same. When no such claim is preferred and when the said amount is already debited to the aforesaid account and shown as an asset in the balance sheet, the authorities adding the said amount over again would be illegal.
The learned counsel for the Revenue submitted that an opportunity may be given to the Department to look at the accounts all over again and ascertain whether the assessee has already shown this amount as an investment in the balance sheet, in which the question of disallowing the said amount as expenditure and again adding to the investment does not arise. Without undertaking that exercise, the authorities committed an error in adding and bringing to tax over
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again the said amount and the same cannot be sustained. Hence, we pass the following order: (a) Appeals are allowed. (b) The impugned orders are set-aside. (c) The Revenue is given liberty to look into the accounts, verify the same and act accordingly. (d) All other contentions are kept open to be agitated, if and when the occasion arises.
Sd/- JUDGE
Sd/- JUDGE
SPS