Ita/224/2009 Of M/S. Dynasty Developers Pvt Ltd v. The Asst Commissioner Of Income Tax

IN THB HIGH COURT OF KARNATAKA AT BENGALURU DATEBD THIS THE [th]DAY OF JANUARY 2015) PRESENT THER HON’BLE MR. JUSTICE N.KUMARAN 1 THER HON’BLE MR. JUSTICE B.VBEBRAPP I.T.A. NO.224/2009C/W.I.T.A. NO.688/2009 BETWEEN: M/s.Dynasty Developers Pvt. Ltd.,Rep. by its Director,Narpat Singh Chariara,Embassy Point, No.150, 1[st]Floor,Infantry Road, Bangalore — 560 OO1. ...APPELLANT (Common in both)| (By Sriyuths. A.Shankar and Lava, Advs.) AND :. The Asst. CommissionerOf Income Tax, ©Circle 11(1), R.P. Building,Nrupatunga Road,| Bangalore. ... RESPONDENT (Common in both) (By Sri.K.V.Aravind, Adv.) LT.A. No.224/2009 is filed under Section 260A ofthe Income Tax Act, 1961, arising out of order dated21.11.2008 passed in ITA No.1268/BNG/2008, for theAssessment Year 2004-05, praying to : 5.6formulate the substantial questions of lawstated therein,stated therein, 5..6Allow the appeal and set-aside the orderpassed by the Income Tax Appellate Tribunal,Bangalore Bench A’ in I.T.A. No.1268/BNG/2OO8 dated 21.11.2008 to the extent it isagainst the Appellant in the interest of justiceand equity.passed by the Income Tax Appellate Tribunal,Bangalore Bench A’ in I.T.A. No.1268/BNG/2OO8 dated 21.11.2008 to the extent it isagainst the Appellant in the interest of justiceand equity. IL.T.A. No.688/2009 is filed under Section 260A ofthe Income Tax Act, 1961, arising out of order dated12.06.2009 passed in M.P. No.25/BNG/2009 (In I.T.A..No.1268/BNG/2007), tor the Assessment Year 2004-|OS, praying to: 5.6formulate the substantial questions of lawstated therein,stated therein, 5..6Allow the appeal and set-aside the order|passedby theIncomeTax|AppellateTribunal, Bangalore Bench, Bangalore inM.P. No.29/BNG/2009 (In LT.A. No.1268/—BNG/2007) dated 12.06.2009 in the interestof justice and equity.passedby theIncomeTax|AppellateTribunal, Bangalore Bench, Bangalore inM.P. No.29/BNG/2009 (In LT.A. No.1268/—BNG/2007) dated 12.06.2009 in the interestof justice and equity. These I.T.As. coming on for,admission and hearingrespectively,,this day,N.Kumar J., delivered the|following: -3-. JUDGMENT The assessee has preferred these two appeals. |LT.A. No.224/2009 is against the order passed by theTribunal rejecting his appeal. The assessee filed anapplication for rectification, which application was alsodismissed, as against which, he has preferred I.T.A.No.688/2009. Therefore, the subject matter of both theappeals being one and the same, they are taken up forconsideration together and disposed of by this commonorder. 2. The assessee iS a company engaged in thebusiness of construction. The assessee filed its return|fortheYCal>2004-05declaringthe.income.oT Rs.5,98,10,688/-. The return of the assessee was.selected for scrutiny. The assessing authority passedan order on 27.12.2006 and computed the total incomeof the assessee at Rs.60,23,19,409/-. The assesseepreferreday?appealagainstthisorderTO the - 4 _| Commissioner of Income-tax (Appeals)-I, Bangalore. —The appeal was partly allowed on 19.10.2007. The FirstAppellate Authority, confirmed the findings of theAssessing Authority relating to the issue of disallowanceof expenditure relating to Embassy Victoria project andallowed the claim of expenditure relating to belatedpayment of PF. — 3. Aggrieved by the said order, the assesseepreferred an appeal to the Tribunal. The Tribunalallirmed the order of the Appellate Authority anddismissed the appeal. Aggrieved by the said order, theassessee filed an application for rectification, which alsocame to be dismissed. Against those two orders, thepresent two appeals are filed. 4. The substantial questions of law that arise for our consideration in these appeals are as under: (1)Whether the Tribunal was justified inupholding the disallowance, when such)upholding the disallowance, when such) -5 -| 3. Aggrieved by the said order, the assesseepreferred an appeal to the Tribunal. The Tribunalallirmed the order of the Appellate Authority anddismissed the appeal. Aggrieved by the said order, theassessee filed an application for rectification, which alsocame to be dismissed. Against those two orders, thepresent two appeals are filed. 4. The substantial questions of law that arise for our consideration in these appeals are as under: (1)Whether the Tribunal was justified inupholding the disallowance, when such)upholding the disallowance, when such) -5 -| EXPENSES|wereTLOclaimedbythe.Appellant as an allowable expenses butLUeCrcapitalizedin|thelongterm.investment account under Victoria projectand.consequentlyGaveFTperversefinding? (2)Whether the Tribunal was justified in lawin confirming the disallowance of items|which were already capitalized on the|facts and circumstance of the case?| Oo. The Tribunal, after looking into the accountshas categorically held that as seen from the balancesheet,theaSSCSSEFEhas|shownaSUIToT|Rs.6,60,44,/723/- as long term investment in EmbassyVictoria Project as on 31.03.2003 which increased toRs.14,48,91,721/- as on 31.03.2004, which is theprevious year relevant to the assessment year underappeal. Further, the ledger account for “Building underconstruction-Victoria”’ shows the opening balance atRs.6,60,44,722, to which is added “Closing Work in -6-. progress’ of Rs.6,/6,/73,296/- with the narration “beingVictoria Project expenses capitalized”. The said entrywas made on 31.03.2004. From the aforesaid entries, it1S|clear.that|theCXPCIISCGCO the.exten.|oT Rs.6,/6,73,296/- have been taken out of the closingwork in progress and debited to the ledger account titled“building under construction — Victoria” which in turnmeans that the Victoria project has not been treated bythe assessee as stock in trade or business asset. The'project has been unequivocally treated by the assesseeas a long term investment but assessee has transferreda sum of Rs.64,31,108/- to the “Building underconstruction—Victoria” account. The assessee had not!claimedRs.64,31,108/-.as|business OTReVeNUEexpenditure in computing the profits of the assessee.However, the authorities proceeded on the assumptionthat the assessee is claiming the said amount asRevenue expenditure, disallowed the same and addedthe same to the cost of the investment. If the assessee| a a had claimed the said amount as Revenue expenditure,aiter debiting the said amount to the “Building underconstruction-Victoria” account, the authorities werejustified in disallowing the same. When no such claimis preferred and when the said amount is alreadydebited to the aforesaid account and shown as an asset'in the balance sheet, the authorities adding the saidamount over again would be illegal. 6. The learned counsel for the Revenue submittedthat an opportunity may be given to the Department tolook at the accounts all over again and ascertainwhether the assessee has already shown this amount as.an investment in the balance sheet, in which thequestion of disallowing the said amount as expenditureand again adding to the investment does not arise.Without undertaking that exercise, the authoritiescommitted an error in adding and bringing to tax over -8-. again the said amount and the same cannot be sustained. Hence, we pass the following order: 5$6Appeals areallowed 5-6The impugned orders are set-aside. 5/6The Revenue is given liberty to look into the| accounts, verify the same and act accordingly. 5+6All other contentions are kept open to be) agitated, if and when the occasion arises. Sd/-.JUDGE| Sd/-.JUDGE| SPS