HITESH CONSTRUCTION CO.,MUMBAI vs. ITO 20(1)(3), MUMBAI

In the present case, the assessment was framed by disallowing the assessee’s claim in respect of interest expenditure u/s. 36(1)(iii) of the Act at Rs.5,26,737/-. The (A.Y. 2007-08) Hitesh Construction Co. vs. ITO assessee, a firm in the business of civil construction, carried the matter in appeal, whereat it was observed that the assessee had received a sum of Rs.39,86,300/- from its sister concern, Jaycee Construction Company (JCC), during the relevant year, even as no such debt appeared in the assessee’s audited final accounts. On the contrary, a sum of Rs.15,92,860/- stood reflected as receivable from JCC as on 31.3.2006 in the books of the assessee-firm, so that the assessee’s books ought to have reflected an outstanding of Rs.23,93,440/- (Rs.39,86,300 – Rs.15,92,860) as on 31.3.2007. The matter was accordingly restored to the file of the Assessing Officer (A.O.), whereat it was found that the assessee had in fact made a payment of Rs.25 lacs to one, Bhagtani Heights Co-operative Housing Society (BHCHS), during the year, for and on behalf of JCC. On the basis of the explanations furnished by the assessee in the remand and the appellate proceedings, it was further found that the assessee-firm had constructed a building (by the name Bhagtani Heights) in Versova, Andheri, and that the co- operative housing society of the said building was obstructing the construction of the road to another building (by the name Shiv Bhagtani Towers) being developed by JCC. Accordingly, JCC filed a suit in the Civil Court against the said society (Defendant No. 1), which the assessee-appellant agreed to join (as Defendant No. 2) on a settlement arrived at between the parties. Per the consent terms, BHCHS agreed not to cause any hindrance to the development of the property (Shiv Bhagtani Towers) and to demolish the compound wall, allowing erection of a sliding gate. Vide clause (f) of the said agreement, the assessee (Defendant No.2) would pay Rs.25 lacs to BHCHS in full and final settlement against the 27 month’s advance maintenance taken by the assessee as a builder from the residents of BHCHS. The assessee- appellant had thus sought to explain the receipt from JCC as on account of the payments to be made by it (assessee) to BHCHS, while no such payment is due to the assessee from JCC as per its accounts. The payment due to BHCHS is against the amount of maintenance for 27 months, already collected by the assessee in advance from the residents of the society, who do not owe anything to JCC, which is clear (A.Y. 2007-08) Hitesh Construction Co. vs. ITO from the consent terms drawn up. There is, accordingly, no question of the said payment, as described, being made on and behalf of JCC. It was also not clear as to why would JCC pay Rs.23.93 lacs to the assessee in excess, or as to why would the assessee pay BHCHS for and on behalf of JCC (refer paras 5 and 5.1 of the impugned order). The said receipt of Rs.23,93,440/- was, thus, not satisfactorily explained and, accordingly, added as the assessee’s income for the year. Aggrieved, the assessee is second appeal.

We have heard the parties, and perused the material on record. We find the Revenue to have based its’ case without considering and de hors the accounts of the assessee-firm and the JCC, which are self explanatory. The ledger account of these two entities, in the books of each other (PB pgs. 16-17, 21-22), together with the account of BHCHS in the books of both (PB pgs. 18-19, 20), fully explain the assessee’s case. The assessee has received a total of Rs.44.36 lacs from JCC during the year. Of the same, Rs.39.99 lacs is through bank transfers, duly credited therefore to the account of the said payee-firm. The balance Rs.4.37 lacs is by way of three adjustment entries, each qua a different party, which stand correspondingly debited (in the assessee’s accounts). There is no mention or whisper about these three adjustments in the orders of the Revenue authorities and, accordingly, no explanation by the assessee in respect thereof. The same must therefore be regarded as in order. The entire credit (of Rs.44.36 lacs) stands adjusted against the opening receivable of Rs.16.60 lacs and receivable of Rs.27,67,657/- by the assessee from BHCHS, and a repayment of Rs.8,000/- (vide cheque no. 517116 dated 28.9.2006). What, then, is the dispute about? The payment of Rs.25 lacs by the assessee to BHCHS during the year, together with the opening receivable of Rs.2.68 lacs, stands thus recovered by the assessee-firm from JCC in full. How can then JCC be said to have paid the assessee in excess – stated to be at Rs.23.93 lacs, or of the said receipt being not explained? The two - JCC and BHCHS, being in dispute, the (A.Y. 2007-08) Hitesh Construction Co. vs. ITO entire amount paid by the assessee to (or receivable from) BHCHS stands, thus, borne by JCC. If, anything, the assessee has also recovered (through JCC) Rs.2.68 lacs due from BHCHS as on 31.3.2006. We could understand an issue if the assessee had claimed Rs.25 lacs paid to BHCHS as an expenditure. That the entire amount paid by it to (or receivable from) BHCHS (Rs.27.68 lacs) stands transferred to JCC, which, together with the amount paid thereto (BHCHS) or on its behalf (Rs.1.83 lacs), i.e., at a total of Rs.29.51 lacs, stands in turn transferred by JCC to the account head ‘infrastructure cost’, is something we are not concerned about. It is in fact clear that as per BHCHS, the assessee-firm owed it 27 month’s maintenance, collected in advance, which it bargained for receipt in view of it allowing access (right of way) to JCC for its’ new building. A settlement was arrived at under the aegis of the Court. This also explains the assessee’s joining the suit filed by JCC (against BHCHS) as Defendant and payment to the latter by it, which though stands finally borne by JCC. The Revenue’s case is without merit and substance. We decide accordingly.