2022 (1) TMI 475 - AT - Income Tax

Tribunal Decision: Revenue Appeal Dismissed, Assessee Appeals Allowed, Profit Estimation Arbitrary

The Tribunal dismissed the Revenue's appeal for A.Y. 2012-13, allowed the assessee's appeal for A.Y. 2013-14, and partly allowed the appeal for A.Y. ... Addition of compensation payable for unauthorised slum dwellers - contingent liability or as an unascertained liability - HELD THAT:- We find that in respect of compensation payable for unauthorised slum dwellers for 115 persons and compensation payable to authorised slum dwellers in respect of 261 persons were correctly provided by the assessee and based on consent terms of the Civil Court and agreement entered into with Vikasak and Sanstha Society. These provisions could not be categorised as contingent liability or as an unascertained liability. It is also a fact that assessee had been continuing to make payments by discharging the liabilities as could be seen in the aforesaid table in subsequent years. Hence, we hold that Apatra Expenses and compensation payable to various slum dwellers are genuine liabilities not warranting any disallowance thereon. TDS u/s 194I on rent expenses - As relying on M/S. SAHANA DWELLERS PVT. LTD. VERSUS INCOME TAX OFFICER WARD–8 (3) (1) , MUMBAI [2016 (3) TMI 591 - ITAT MUMBAI] we hold that tax is not required to be deducted on the rent component and hence, no disallowance u/s.40 (a)(ia) of the Act could be made thereon. Cost of materials consumed and cost of construction - Going by the conduct of the assessee, we find that assessee though had not received the sum of ₹ 45 Crores in full even upto 31/03/2016, but the assessee had volunteered to offer the said sum of ₹ 45 Crores in the year under consideration and had claimed the expenses that are to be incurred for the smooth execution of the project in consonance with the matching principle of income and expenditure thereon, and also considering the fact that the very same modus operandi adopted by the assessee in subsequent years i.e. in A.Y₹ 2013-14 and 2014-15 were accepted by the ld. AO in scrutiny assessment proceedings without making any additions thereon or rejecting the books of accounts of the assessee, we are not inclined to accept to the arguments of the ld. DR that atleast 5% of expenses offered by the assessee during the course of assessment proceedings need to be taxed. The ld. CIT(A) had already pointed out that the said offer was made only to buy peace and avoid protracted litigation. We also find that the alleged defects pointed out by the ld. AO had been duly addressed by the assessee and in these peculiar facts and circumstances of the case, we are not inclined to direct the ld. AO to add 5% of expenses offered by the assessee during the course of assessment proceedings. Hence, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee. Accordingly, the grounds raised by the Revenue are dismissed. Disallowance of loss of A.Y.2012-13 on the pretext that no loss was available in A.Y.2012-13 in view of additions made - consequential set off in subsequent years. During this year, there was a change in shareholding beyond 51% of voting power which was stated to be in violation of provision of Section 79 of the Act. Hence, in the opinion of the Revenue, the assessee is not entitled for set off of losses. But we find that the shares were only transferred from Karta to its Coparceners and hence, there was no change in shareholding at all. But from the perusal of the assessment order, we find that there is no finding recorded by the ld. AO in this regard. Hence, we are inclined to dismiss the ground No.3 raised by the assessee as not emanating from the order of the ld. AO. However, we hold that assessee would be entitled for set off of loss of A.Y.2012-13 with the profits, if any, of A.Y.2014-15. Issues Involved:1. Deletion of addition made on account of determination of net profit @8% of turnover.2. Rejection of books of accounts.3. Disallowance of various expenses including Apatra expenses, compensation for delay in project, rent expenses, and cost of construction.4. Disallowance u/s. 40(a)(ia) for non-deduction of TDS on rent expenses.5. Set off and carry forward of losses of earlier years.Issue-wise Detailed Analysis:1. Deletion of Addition Made on Account of Determination of Net Profit @8% of Turnover:The Revenue contested the deletion of the addition made by the Assessing Officer (AO) who determined the net profit at 8% of the turnover. The AO rejected the books of accounts and estimated the net profit based on the provisions of Section 44AD of the Income Tax Act, 1961, which the assessee argued was not applicable. The CIT(A) observed that the AO did not provide any evidence to support the 8% net profit rate and that the AO's general observation about the profitability of slum rehabilitation projects was not substantiated. The CIT(A) found that the AO had mixed up the issues related to payments to unauthorized and authorized slum dwellers and concluded that the rejection of books and estimation of net profit was arbitrary. The Tribunal upheld the CIT(A)'s decision, noting that the AO had accepted the assessee's method of accounting in subsequent years without making any additions.2. Rejection of Books of Accounts:The AO rejected the books of accounts under Section 145(3) of the Act, citing inconsistencies and unascertained liabilities. The CIT(A) disagreed, stating that the AO's observations were based on incorrect facts and that the books were audited with no discrepancies pointed out in the tax audit report. The Tribunal concurred with the CIT(A), noting that the AO had accepted the books in subsequent years and that the offer of disallowance by the assessee was to buy peace and avoid litigation, not an admission of discrepancies.3. Disallowance of Various Expenses:- Apatra Expenses and Compensation for Delay in Project: The AO disallowed these expenses, questioning their genuineness and timing. The CIT(A) found that these were based on agreements and consent terms of the Civil Court, making them ascertained liabilities. The Tribunal upheld this view, noting that the assessee had been making payments in subsequent years, proving the genuineness of the liabilities.- Rent Expenses: The AO disallowed these expenses under Section 40(a)(ia) for non-deduction of TDS. The CIT(A) and the Tribunal, relying on case law, held that these were not in the nature of rent but compensation for alternate accommodation, thus not attracting TDS provisions.- Cost of Construction: The AO questioned the genuineness and timing of these expenses. The CIT(A) found that the cost claimed was conservative and on the lower side, with actual costs reaching approximately Rs. 15 crores in subsequent years. The Tribunal agreed, noting that the assessee had not received the full sale consideration but had offered it for taxation, following the matching principle of income and expenditure.4. Disallowance u/s. 40(a)(ia) for Non-Deduction of TDS on Rent Expenses:The AO disallowed rent expenses for non-deduction of TDS. The CIT(A), relying on Tribunal decisions, held that the payments were compensation for alternate accommodation, not rent, and thus not subject to TDS. The Tribunal upheld this decision, confirming that no disallowance under Section 40(a)(ia) was warranted.5. Set Off and Carry Forward of Losses of Earlier Years:The AO denied the set-off of losses from earlier years due to the conversion of returned loss into assessed income by estimating net profit. The Tribunal, having deleted the additions for A.Y. 2012-13, held that the assessee was eligible to carry forward and set off losses as per law. For A.Y. 2014-15, the Tribunal dismissed the ground regarding the change in shareholding as it was not emanating from the AO's order and confirmed the eligibility for set-off of losses.Conclusion:The Tribunal dismissed the Revenue's appeal for A.Y. 2012-13, allowed the assessee's appeal for A.Y. 2013-14, and partly allowed the appeal for A.Y. 2014-15. The order was pronounced on 23/12/2021.