TaxTMI 
TaxTMI 
2022 (1) TMI 475
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.....2012-13) 2. The only effective issue to be decided in this appeal of the Revenue is as to whether the ld. CIT(A) was justified in deleting the addition made on account of determination of net profit @8% of turnover as arbitrary in the facts and circumstances of the case. The interconnected issue involved therein is whether the ld. CIT(A) was justified in dismissing the action of the ld. AO rejecting the books of accounts in the facts and circumstances of the instant case. 3. We have heard rival submissions and perused the materials available on record. We find that assessee is a private limited company engaged in the business of construction and re-development of properties. The return of income for the A.Y.2012-13 was filed by the assessee on 30/09/2012 declaring total loss of Rs. 7,59,52,387/-. The assessee is a Private Limited Company engaged in the business of construction and redevelopment of properties. The assessee had undertaken redevelopment of a Slum Rehabilitation Project by entering into agreement with Triveni Sangam SRA CHS Ltd. at village Gundavli, Andheri (E), Mumbai. 3.1. The assessee submitted that it obtained various approvals from Slum Rehabilitation Au....
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....ed by additional amount of Rs. 3 lacs per slum dweller. The assessee submitted that this was also agreed as per the same agreement entered into with Vikasak & Sanstha Society. Thus, in terms of the said agreement, the assessee provided a sum of Rs. 7.80 cr. as compensation for delay in project and this amount was to be payable only to eligible slum dwellers totaling to 261. 3.6. The ld. AO observed in his order as under:- 3.5 Out of the expenses claimed of Rs. 52.81 crores the following expenses are significant: Cost of materials consumed Rs. 16.76 crores Other expenses: Apatra expenses Rs. 13.80 crores Compensation for delay in project Rs. 7.80 crores Cost of construction for tenant building Rs. 10 crores Rent expenses Rs. 2.12 crores 3.6 ADMISSIBILITY OF EXPENSES CLAIMED: 3.6.1. Apatra & Compensation for delay in project: The assessee has claimed a sum of Rs. 13.80 crores as apatra expenses. When assessee was asked to explain the details of these expenses, it was stated that they represented payments to be made to certain illegal dwellers residing on the plot who are not eligible for the SRA Scheme but are still....
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....On the contrary the assessee claimed that the sum of Rs. 3 lacs is also payable for delay in payment of compensation to the illegal dwellers too. Further the agreement also does not specify any time period within which the initial compensation of Rs. 12 lacs is to be paid. The question of payment of additional compensation of Rs. 3 lacs will arise only in the event of delay in payment of the original compensation of Rs. 12 lacs. When the time period for payment of Rs. 12 lacs is not specified in the agreement, it is also not possible to determine or ascertain the year in which the liability to pay the additional compensation arises. In these circumstances, the additional compensation of Rs. 7.80 crores cannot be held to be an ascertained liability for the A.Y 2012-13. During the assessment proceedings the assessee was also asked to give the details of the parties to whom the additional compensation was due. The assessee gave details of only 86 parties amounting to Rs. 2.68 crores. No details were furnished in respect of the balance sum claimed of Rs. 5.12 crores. The submissions of the assessee with regard to the apatra expenses and the compensation for d....
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....view of the above the conclusions that are drawn from the given set of facts and circumstances are as under: 1 In the absence of providing the list of parties to whom the apatra expenses was claimed to be payable by the assessee, the department was thus precluded from examining such parties so as to verify the veracity of the claim made by the assessee. 2 There was no time frame specified in the agreement and no other evidence or material was furnished to show that the additional payment of Rs. 3 lacs per person got accrued to the assessee during the relevant previous year. 3 Mere averment that all the expenses corresponding to the income shown have to be debited on matching concept basis is not acceptable when the legitimacy and genuineness of the same was not proved. 4 A majority of the expenses have been quantified provisionally and debited in the P & L Account on the ground that the entire income had been offered in the A Y under:- consideration without proving that such expenses have indeed accrued or ascertained during the year under consideration. 5. On calling for these relevant details, the assessee vide letter filed on 23-3-201....
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....see till such time the newly constructed accommodation is made available. It is not a case of reimbursement of expenses as claimed since the tenants are not liable to pay the rent and it is the sole responsibility of the assessee. These expenses are also directly liable to be incurred by the assessee and therefore, the provisions of S. 1941 of I T Act is clearly attracted. the assessee failed to deduct tax, the amount of rent expenses is liable for disallowance as per provisions of s. 40(a)(ia) of IT Act. 4. Cost of construction for tenant building: During the year the assessee claimed Rs. 10 crores as expenses under the head cost of construction for tenant building. The assessee has furnished only a rough estimate of the expenses to be incurred by him and has passed journal entries by creating a provision for this cost. These expenses have neither been incurred nor have been accrued during the P Y relevant to A Y 2012-13, Therefore, this estimate cannot be called as an ascertained liability for the year under consideration. 5. Cost of materials consumed: During the year the assessee had shown Work In Progress of a sum of Rs. 124392726/-towards c....
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.... Cotton Mill Co. Ltd. v. O7-[1980] 125 ITR 33 / 3 Taxman 280. 6.2 It is pertinent to mention at this juncture the fact that the assessee itself is not bound by the entries made in it books has been revealed when it itself has agreed to offer a 5% disallowance of the expenses claimed in its books. No plausible explanation or detail or evidence for offering the percentage of disallowance @ 5% has been given by the assessee. And this offer of disallowance has also been made after having got the accounts audited by a tax auditor u/s 44AB of IT Act who after effecting due diligence in the matter has certified not only the correctness of net profit but also the correctness of the impugned expenses in arriving at it. 6.3 Under these circumstances, it is hereby held that the books of accounts prepared by the assessee in arriving at the loss of Rs. 7,59,52,387/- cannot be relied upon and are thus rejected by invoking the provisions of Section 145(3)(a) of IT Act. 6.4 The provisions of S. 145 of the Act provide as under: "Section 145 (1) Income Chargeable under the head "Profit and Gains of business or profession" or Income From other sources" sha....
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....he reasonableness of the percentage adopted. 6.7 Accordingly the net profit liable to be taxed @ 8% on Rs. 45.04 crores is worked out at Rs. 3,60,34,820/- and this is treated as the total income of the assessee for the A Y under consideration in place of the loss of Rs. 7,59,52,387/- shown in the return. Penalty proceedings u/sec. 271(1)(c) of the IT Act, 1961, are initiated on this issue. 3.7. The assessee submitted before the ld. CIT(A) that the observation made in the assessment order in last para at page 3 and first para at page 4 is factually incorrect as the ld. AO had mixed both the issues i.e. payment of Rs. 12,00,000/- per person to 115 unauthorised slum dwellers (Apartra expenses) with that of 261 eligible slum dwellers to whom additional compensation was to be paid @Rs. 3,00,000/- per person due to delay in construction of rehab buildings. It was submitted that assessee had correctly provided for these liabilities which it has to pay as per the agreement entered into and also as per the consent terms of the Hon'ble Civil Court. Hence, both these amounts i.e. Rs. 13.80 Crores and Rs. 7.80 Crores are to be paid to separate slum dwellers i.e. the former is to be....
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....nt submits that it has followed mercantile system of accounting and hence, the liability ascertained against the sale consideration has to be provided for even if the actual payment is to be made at a later date. AO - point 3 (a to c) - page 5: a) Again this observation is due to not understanding the facts correctly and hence, has no relevance whatsoever. The additional compensation is paid to eligible slum dwellers and not to encroachers (unauthorized dwellers). b) List of 261 parties, i.e. eligible slum dwellers is already furnished to the AO and no other details were called for. The AO ought to have specifically called for the same. Further, the copy of agreement and consent terms of Civil Court was filed, which proves the bonafides and genuineness of the transaction. c) As already explained above, the appellant has not provided additional compensation of Rs. 3 lacs to illegal dwellers and hence, the observation is factually incorrect. 14. The appellant submits that the findings given on pages 5 & 6 are based on incorrect appreciation of facts. The appellant submits that when the facts itself are not correctly taken into consideratio....
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....at the rent claimed in the profit and loss account is not disallowable and the observations of the AO in this respect are factually incorrect. Thus, the amount of Rs. 2.12 cr. is fully allowable as expenses. 21. With respect to the cost of construction of the rehab building, the appellant submits that the estimation made of Rs. 10 cr. toward the same is in fact on lower side and the actual expenses incurred till date exceeds far more and hence, the observation that this cannot be called ascertained liability is contrary to the facts of the case. Further, following mercantile system of accounting, the provision made for ascertained liability ought to be allowed. Thus, the provision of Rs. 10 cr. cannot be said to be unascertained liability more particularly when in the development agreement, the appellant and the third party has estimated the liability to be about Rs. 15 cr. and therefore this amount was withheld to be paid as and when the construction of rehab buildings are in progress and gets completed. 22. With respect to the cost of material consumed, the appellant submits that it has not claimed any excess material cost and entire details in this regard i.e. ....
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....rt, legal notices issued, agreements entered, etc. 28. The observation made in para 6.2 is already dealt with above and the offer to disallow ad hoc 5% of the expenses claimed was to buy peace and avoid protracted litigation. However, this does not and cannot lead to inference that the books of accounts are not correctly maintained. The AO has failed to point out discrepancy in the books of account and therefore the AO is not justified to take the offer of the appellant as basis for rejecting the books of account. The appellant submits that in any case, the AO has not accepted the offer of the appellant and therefore the AO was not justified in taking cognizance of the same. 3.9. The assessee pointed out that books of accounts of the assessee are audited by qualified Chartered Accountant and no discrepancy was pointed out in the tax audit report. The audited books of accounts clearly give correct and complete picture of the accounts and income derived therefrom. The observation of the ld. AO in para 6.5, the slum rehabilitation projects are usually more profitable is again general observation without any evidence to this fact and more particularly when the assessee has ....
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.... cost 10,00,00,000 5,98,30,359 2,16,83,777 24,16,186 1,33,08,852 27,60,825 Total 31,60,00,000 12,32,30,359 3,92,31,777 1,35,73,186 1,58,08,852 12,41,55,825 3.11. The assessee further submitted that from the above chart, it would be appreciated that out of the total provision made of Rs. 31.60 cr., the assessee has already incurred and paid a sum of Rs. 19,18,44,175/- during the period from 01.04.2012 to 31.03.2016. Further, as at 31.03.2016, one Rehab building is yet to be constructed and thus the cost of construction for the said building would be in crores of rupees, which itself show that the cost of construction for Rehab building estimated as at 31.03.2012 at Rs. 10 cr. was at lower side. In any case, the assessee submitted that the provisions made were in respect of ascertained and accrued liabilities, which has been discharged to a certain extent and thus, the provision made could not be disallowed. 3.12. The assessee also gave chart of the amounts actually received against the sale consideration of Rs. 45 cr as under:- Asst. Year Amount Received Balance receivable 2012-13 15,60,00,000 29,40,00,000 2013-14 ....
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....r deduction of tax at source thereof. Accordingly, no disallowance u/s.40(a)(ia) of the Act could be made. 4.1. The ld. CIT(A) observed that assessee is not a Director and company is engaged in the business of construction and re-development of properties. Accordingly, the application of provisions to Section 44AD of the Act and the profit percentage determined thereon is misplaced. The ld. CIT(A) also observed that the ld. AO had not brought any evidence on record to prove that whether in this line of industry, assessee could have earned 8% net profit. No comparable instances were brought on record. With regard to the disallowance voluntarily offered by the assessee @5% in the course of assessment proceedings, the ld. CIT(A) observed that the same was done only to avoid protracted litigation and to buy peace and does not in any way tantamount to acceptance by the assessee that there are some defects in the books of accounts. Since, no disallowances were made by the ld. AO in the scrutiny assessment proceedings for subsequent two years for the very same genuine project and the assessee's method of accounting has been fully accepted by the ld. AO in the subsequent years, there is....
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....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. 4.7. With regard to rent expenses, we find that the ld. CIT(A) had rightly placed reliance on the Co-ordinate Bench decision of this Tribunal in the case of Sahana Dwellers referred to supra wherein it was held as under:- 6. We have considered the submissions of the parties and perused the material available on record. Undisputedly, the property in question where the tenants were staying earlier, was owned by the Brihan Mumbai Mahanagar Palika and the tenants were paying rent to the Municipal Corporation. It is also a fact on record that the subject building having become old and in a dilapidated condition the authorities concerned decided to demolish the said building and construct a new building in its place under the SRA Project and the construction of the new building was entrusted to the assessee. It is also a fact that since th....
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.... assessee is not making such payment for use of any land, building, etc. On the contrary, if the facts involved are considered as a whole the payment made by the assessee is nothing else but in the nature of compensation. The Tribunal in case of Jitendra Kumar Madan (supra) while considering the nature of payment received for alternative accommodation by the recipients held such payments at their hand as income from other sources instead of income from house property. That being the case, the payment made by the assessee also being in the nature of compensation for alternative accommodation cannot be treated as rent. Moreover, such compensation cannot be treated as rent for the simple reason that not only the assessee is not using any land and building but it may also be a fact that persons to whom such payments have been made may not be incurring any expenditure on account of rent. In any case of the matter, payments made by assessee under no circumstances can be construed to be coming within the meaning of "Rent" as provided under section 194I. Thus, after considering the totality of the facts and circumstances of the case, we are of the considered opinion that compensation paid ....
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....essee. Accordingly, the grounds raised by the Revenue are dismissed. ITA No.332/Mum/2018 (A.Y.2013-14) 6. The grounds raised by the assessee for A.Y.2013-14 are only with regard to set off and carry forward of losses of earlier years. We find that the ld. AO in A.Y.2012-13 had converted the returned loss of the assessee into assessed income. The said income was determined by the ld. AO by estimating net profit @8%. In the aforesaid order, we have already deleted the entire addition made by the ld. AO and affirmed the order of the ld. CIT(A) for A.Y. 2012-13. Hence, assessee would be eligible to carry forward loss pertaining upto A.Y.2012-13 to subsequent assessment years as per law. Hence, the grounds raised by the assessee for A.Y.2013-14 are allowed. ITA No.331/Mum/2018 (A.Y.2014-15) 7. The grounds raised by the assessee are similar to that raised by the assessee for A.Y.2013-14. We find that the ld. AO had sought to disallow the loss of A.Y.2012-13 on the pretext that no loss was available in A.Y.2012-13 in view of additions made by him. As stated earlier, the additions made by the ld. AO in A.Y.2012-13 has already been directed to be deleted, hence, assessee would b....