2021 (10) TMI 1319 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decisions on Reopening Assessments & Business Expenses

DCIT, Central Circle-1 (2), Mumbai Versus M/s. Saudela Constructions Pvt. Ltd.

DCIT, Central Circle-1 (2), Mumbai Versus M/s. Saudela Constructions Pvt. Ltd. - TMI Issues Involved:1. Validity of assessment under section 143(3) read with section 153C of the Income Tax Act, 1961.2. Deletion of disallowance of business expenditure.3. Treatment of interest income on fixed deposits.4. Deletion of disallowance of preliminary expenses.Detailed Analysis:1. Validity of Assessment under Section 143(3) read with Section 153C:The Revenue challenged the CIT(A)’s decision to treat the assessment order under section 143(3) read with section 153C as invalid. The CIT(A) held that the assessment had attained finality on the date of search and could not be reopened unless fresh incriminating material was found. The Tribunal upheld this view, citing the Bombay High Court’s decision in Continental Warehousing Corporation, which states that completed assessments do not abate and additions can only be made based on incriminating material found during the search. The Tribunal dismissed the Revenue’s grounds, affirming that no incriminating material was found in this case.2. Deletion of Disallowance of Business Expenditure:The AO disallowed Rs. 3,20,86,059/- of business expenses, arguing that these should be added to the project work in progress. The CIT(A) deleted this disallowance, following the Tribunal’s decision in the case of a group concern, M/s. Hiranandani Palace Garden Pvt. Ltd., which allowed such expenses as per accounting standards. The Tribunal upheld the CIT(A)’s decision, noting that the expenses were administrative, marketing, and selling expenses, which are allowable even under the project completion method.3. Treatment of Interest Income on Fixed Deposits:The AO treated Rs. 55,04,550/- earned as interest on fixed deposits as “Income from Other Sources.” The CIT(A) reversed this, treating it as “Business Income” based on the Tribunal’s decision in the case of M/s. Hiranandani Palace Garden Pvt. Ltd., where such interest was considered inextricably linked to the business and thus assessable as business income. The Tribunal upheld the CIT(A)’s decision, dismissing the Revenue’s ground.4. Deletion of Disallowance of Preliminary Expenses:The AO disallowed preliminary expenses of Rs. 48,11,076/-, stating they were incurred after business commencement and not for setting up a new unit, thus not allowable under section 35D. The CIT(A) allowed the expenses, following the Tribunal’s decision in the assessee’s own case for a previous year, where such expenses were deemed allowable. The Tribunal upheld the CIT(A)’s decision but limited the allowable amount to Rs. 14,87,380/- as per the precedent.Consolidated Appeals:For the other assessment years (2012-13, 2013-14, 2014-15), the Tribunal applied the same reasoning and decisions as in the appeal for A.Y. 2011-12. The grounds related to the deletion of business expenditure and preliminary expenses were similarly dismissed or partly allowed.Conclusion:The Tribunal’s order primarily upheld the CIT(A)’s decisions on all issues, affirming that no additions could be made without incriminating material, allowing business and preliminary expenses, and treating interest income as business income. The appeals of the Revenue were partly allowed, specifically limiting the allowable preliminary expenses to Rs. 14,87,380/-.