Tribunal directs re-examination of WIP disallowance and carry forward claims for AY 2011-12 & 2012-13

The Tribunal allowed the appeals for statistical purposes, directing the AO to re-examine the issue of disallowance of work-in-progress (WIP) and denial of carry forward claims for AY 2011-12 and 2012-13. The Tribunal considered additional evidence presented by the assessee's counsel crucial for resolving the dispute and ordered the matter to be restored to the AO for fresh adjudication, emphasizing thorough verification of payments and their purpose.

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Issues Involved:
1. Disallowance of work-in-progress (WIP) and denial of carry forward claim for AY 2011-12 and 2012-13.
2. Admission of additional evidence under Rule 29 of ITAT Rules, 1963.

Issue-wise Detailed Analysis:

1. Disallowance of Work-in-Progress (WIP) and Denial of Carry Forward Claim for AY 2011-12 and 2012-13:

The main issue revolves around the disallowance of WIP amounting to Rs. 2,99,40,000/- related to the redevelopment of "Kirti Chambers" property. The assessee company, incorporated on 03/02/2011, failed to file its regular return of income for AY 2011-12, prompting the Assessing Officer (AO) to issue a notice under section 148 of the Income-tax Act, 1961. In response, the assessee filed a return declaring Nil income but claimed WIP in respect of Kirti Chambers, which the AO disallowed and denied its carry forward.

The property "Kirti Chambers" was initially owned by M/s Sahib Enterprises and later purchased by the promoters of the assessee company, Mr. Ashwin L. Shah and Mrs. Kalpana Shah, and subsequently transferred to the assessee company. The AO observed discrepancies in the WIP entries, particularly payments made by M/s Vedang Builders LLP on behalf of the assessee, which were not reflected in the registered agreements but in unregistered documents. The AO disallowed the WIP claim, citing the following reasons:
- The unregistered document did not bear any signature/confirmation of the alleged recipient of the proceeds of transfer of tenancy rights, rendering it legally and evidentially void.
- The cost of acquisition of tenancy rights was recorded as nil in the registered documents.
- The entries in the assessee's books were made for a period when the company did not exist.
- Corresponding entries in M/s Vedang Builders LLP's books were not passed on the given dates but were made later by journal entry.
- Discrepancies in payment instruments and lack of evidence of payments in the consent terms agreed before the Court of Small Causes at Mumbai.

The CIT(A) upheld the AO's disallowance, emphasizing that the appellant's claim was unsubstantiated and the practice of not disclosing actual consideration in registered agreements to evade stamp duty was highly unethical.

2. Admission of Additional Evidence under Rule 29 of ITAT Rules, 1963:

Before the Tribunal, the assessee's counsel filed an application for admission of additional evidence, presenting a certified copy of a duly executed and notarized memorandum of understanding dated 14/09/2010 between the landlords and M/s Vedang Builders LLP, detailing payment terms up to Rs. 12 crores to tenants/occupants. The counsel requested the Tribunal to restore the issue to the AO for fresh adjudication, considering this additional evidence.

The Tribunal noted that the issue in dispute was the genuineness of the WIP amount claimed by the assessee. The lower authorities rejected the claim based on discrepancies between registered and unregistered agreements, lack of direct payment evidence, and the timing of entries in the books of accounts. The Tribunal acknowledged that the additional evidence could be crucial for resolving the issue and decided to restore the matter to the AO for fresh adjudication. The AO was directed to verify the payments made and their purpose, with the assessee responsible for producing the seller parties and cooperating in the inquiry.

Conclusion:

The Tribunal allowed the appeals for statistical purposes, directing the AO to re-examine the issue of WIP disallowance and carry forward claims for AY 2011-12 and 2012-13, considering the additional evidence and ensuring thorough verification of payments and their purpose. The order was pronounced on 29/09/2022.

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