ITO 10(1)(4), MUMBAI vs. DIVYANSH CONSTRUCTION P.LTD, MUMBAI

This is an appeal directed against the order dated 26.11.2013 passed by the Commissioner of Income Tax (Appeals)-21, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the assessment year 2010-11.

The assessee filed the return of income declaring total income of Rs.1,93,700/- on 30.09.2010. Subsequently, the case was selected for scrutiny under CASS and accordingly notice u/s. 143(2) of the Income Tax Act, 1961( in short “the Act”) dated 24.08.2011 was issued and duly served upon the assessee. Thereafter, the notices u/s. 142(1) dated 28.08.2011 and 26.07.2012 were also issued. After receipt of the notice M/s. Manoj V. Jain & Co. CA’s appeared. The assessee company is primarily engaged in the construction Assessment Year: 2010-11 activities and in the balance sheet shown capital work in progress. During the year the addition in land cost and construction cost shown at Rs.10,445/- and Rs.4,92,181/- respectively. As per Profit & Loss Account the assessee shown rent receipts of Rs.23,40,000/- and after debiting various expenses shown net profit of Rs.1,93,696/-. The Assessing Officer disallowed the expenses of Rs.20,96,304/- and transferred it as work in progress. The Assessing Officer also further disallowed sundry expenses of Rs.67,254/-. Therefore, the assessee filed the appeal before learned CIT(A) and the learned CIT(A) treated as allowed the said expenses and hence feeling aggrieved the revenue has filed the present appeal before us.

We have heard the arguments advanced by the learned representative of the parties and have gone through the record carefully. The learned representative of the Department has argued that the learned CIT(A) is wrong in allowing the business loss against the rental income of the assessee, therefore, the order in question is wrong against law and facts and is liable to be set aside. It is also argued that the learned CIT(A) has wrongly allowed the sundry expenses of Rs.67,524/- without any evidence on record hence the order in question is not liable to be sustainable in the eyes of law. On the other hand the learned representative of the assessee has refuted the said contentions. Keeping in view of the arguments advanced by the parties and going through the record carefully it came into notice that the assessee is in the business of construction activities but assessee had stopped the construction activities temporarily due to the reason of that in the year 2006 to 2008 there was a sharp fall in real estate market and severe liquidity crunch. The assessee had claimed certain expenses as revenue expenditure in Profit & Loss Account for the advertising agency which was adjusted and filed the return as NIL. In the assessee’s books of accounts direct expenditure incurred for the construction was treated as work in progress and indirect expenses related to the business were debited to Profit and