2023 (12) TMI 31 - AT - Income Tax

Revenue's appeal dismissed on construction expenses, deemed dividend timing, derivative transactions, and documentation requirements

Deputy Commissioner of Income Tax, Circle-1 (1), Raipur Versus S.P. Buildcon Private Limited

Deputy Commissioner of Income Tax, Circle-1 (1), Raipur Versus S.P. Buildcon Private Limited - TMI Issues Involved:1. Deletion of addition on account of provision for construction expenses.2. Deletion of addition on account of non-deduction of tax on deemed dividend under Section 2(22)(e) of the Income Tax Act.3. Deletion of addition on account of speculative loss from commodity transactions.4. Deletion of addition by adopting AS-7 (Percentage Completion Method) for revenue recognition.5. Deletion of addition under Section 68 of the Income Tax Act for unexplained cash credits.Issue-wise Summary:1. Deletion of Addition on Account of Provision for Construction Expenses:The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 5,00,000/- made by the AO for provision under construction expenses. The provision was made in the subsequent year (FY 2014-15) and not in the year under consideration (FY 2013-14). The AO's disallowance was based on a misreading of the ledger accounts, and the Tribunal found no infirmity in the CIT(A)'s order.2. Deletion of Addition on Account of Non-Deduction of Tax on Deemed Dividend Under Section 2(22)(e):The Tribunal dismissed the Revenue's appeal against the CIT(A)'s deletion of the addition of Rs. 1,34,83,176/- for non-deduction of tax on deemed dividend. The Tribunal noted that the accounts of the directors were in the nature of current accounts, not loans or advances. Additionally, the provisions of Section 40(a)(ia) were not applicable for deemed dividends under Section 2(22)(e) for AY 2014-15, as they were applicable from AY 2015-16.3. Deletion of Addition on Account of Speculative Loss from Commodity Transactions:The Tribunal upheld the CIT(A)'s decision to treat the loss of Rs. 56,15,450/- from trading in currency derivatives as a business loss, not a speculative loss. The transactions were carried out through recognized stock exchanges, and the AO's suspicion of accommodation transactions was not supported by any concrete evidence. The Tribunal found that the CIT(A) had rightly considered the transactions as business transactions under Section 43(5)(e).4. Deletion of Addition by Adopting AS-7 (Percentage Completion Method) for Revenue Recognition:The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 60,39,610/- made by the AO by adopting AS-7 (Percentage Completion Method). The assessee consistently followed the Project Completion Method, which is recognized by the ICAI and was accepted by the Revenue in earlier years. The Tribunal found that both methods yield the same result over the project life and are revenue-neutral.5. Deletion of Addition Under Section 68 for Unexplained Cash Credits:The Tribunal upheld the CIT(A)'s deletion of the addition of Rs. 2,11,21,389/- under Section 68. The assessee provided sufficient evidence, including ITRs, bank statements, and confirmations, to substantiate the identity, creditworthiness, and genuineness of the transactions. The AO failed to disprove the assessee's claims or conduct further inquiries. The Tribunal found that the AO's addition was based on assumptions and lacked corroborative evidence.Conclusion:The Tribunal dismissed both appeals of the Revenue, upholding the CIT(A)'s decisions on all issues. The Tribunal found that the CIT(A) had correctly interpreted the facts and applied the law, and the AO's additions were not justified based on the evidence and legal standards.