The Commissioner Of Income Tax-3 v. Ajib Investments Pvt. Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.137 OF 2010 The Commissioner of Income Tax-3.Vs.Ajib Investments Pvt. Ltd. ...Appellant. ...Respondent. Mr.Vimal Gupta for the Appellant.None for the Respondent. CORAM : S.J.VAZIFDAR & M.S. SANKLECHA, JJ. DATE : 16th July, 2012 PC: This appeal by the revenue under Section 260A of the Income Tax Act,1961 (hereinafter referred to as the “said Act”) challenges the order dated 11 June,2009 of the Income Tax Appellate Tribunal (hereinafter referred to as the “Tribunal”) relating to Assessment Year 2004-05. The appellant has formulated the following question of law for consideration of this Court. 1)Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the project completion method of accounting consistently followed by the assessee should not be disturbed and thereby deleting the addition of Rs.21,44,259/- made by the Assessing officer? 2)Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that compensation received by the Assessee company on leasing out its Air conditioning plaint is “business income” and not “income from other sources” as held by the Assessing Officer as the income is not related to the construction business of the Assessee Company? 3)Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that income of Rs.10,02,338/- being interest earned is “business income” and not “income from other sources” as held by the Assessing Officer as the income is not related to the construction business of the Assessee company? 4)Whether on the facts and in the circumstances of the case and in law the Tribunal was right in holding that Rs.23,15,124/- being administrative expenses and depreciation of Rs.9,39,010/- are allowable as general administration expenses even though such expenses and depreciation is not related to the construction business of the Assessee Company? 5)Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that nothing was brought on record before proceeding to make addition Rs.54,54,700/- without appreciating the fact that identity and capability of creditors were not examined? 6)Whether on the facts and in the circumstances of the case and in law, the Tribunal, was right in deleting the addition made by the Assessing Officer of Rs.33,92632/- out of liabilities of expenses without appreciating the fact the assessee failed to prove the genuineness of the expenses? Regarding Question (1) : 2)The respondent-assessee carries on business in construction, finance and leasing. During the Assessment year 2004-05 the respondent-assessee was carrying out a construction project at Mira Road. The respondent-assessee follows mercantile system of accounting and in respect of its construction activity has consistently adopted project completion method of accounting. The Assessing officer by an order dated 20[th] December 2006 while assessing the respondent for Assessment Year 2004-05 rejected the project completion method adopted by the respondent and held that in mercantile system of accounting income has to be accounted on accrual basis and profits arrived at for payment of taxes. Consequently, the Assessing Officer sought to tax an amount of Rs.21.44 lacs as the income accrued in respect of its project at Mira road for the Assessment Year 2004-05. income accrued in respect of its project at Mira road for the Assessment Year 2004-05. 3)The Commissioner of Income Tax(Appeals) by an order dated 23[rd] August,2007 allowed the respondent's appeal by holding project completion method is a known method of accounting and the respondent has been consistently following the same. Further, the amount of Rs.21.44 lacs has been offered to tax by the respondent in the Assessment Year 2005-06 when the project was completed. In the circumstances, the addition of Rs.21.44 lacs made to the income for the Assessment year 2004-05 by the Assessing Officer was deleted. 4)Being aggrieved the revenue filed an appeal to the Tribunal. The Tribunal by its order dated 11 June,2009 upheld the order of the Commissioner of Income Tax(Appeals) and recorded a finding that the accrued income of Rs.21.44 lacs has been offered to tax in the assessment year 2005-06 when the construction project at Mira Road was completed. Further the Tribunal held that it is the settled position of law that income can be taxed only once and in this case it has been taxed in the assessment year 2005-006. Therefore, the revenue's appeal was dismissed. 5) Therefore as held by Commissioner of Income Tax (Appeals) and the Tribunal the respondent has been regularly following the project completion method of accounting in respect of its construction activity and the tax in respect of the so called accrued income has also been paid when the project was completed in the assessment year 2005-06. In view of the above, the question (1) as raised does not given rise to any substantial question of law and is dismissed. Regarding Question Nos. (2) and (3) : 6)The respondent besides carrying on business of construction also carries on business of financing and leasing as is evident from the object clause of its Memorandum of Association. During the Assessment year 2004-05 the respondent had leased out an air conditioning plant and received compensation of Rs.15/- lacs in respect thereof. Similarly the respondent had also earned interest of Rs.10.02 lacs during the year on amounts lent. The Assessing officer while completing the assessment for the Assessment year 20004-05 by an order dated 20 December 2006 held that the compensation received for leasing of air conditioning equipment and interest earned on amounts lent were not classifiable as business income but classifiable as income from other sources. 7)The Commissioner of Income Tax (Appeals) on facts held that the respondent has been engaged in the business of financing and leasing as per its object clause. Consequently, the amount received as interest income and as compensation for leasing the air conditioning plant ought to be considered as income from business and not income from other sources. 8) The Tribunal by its order dated 11 June 2009 upheld the finding of Commissioner of Income Tax(Appeals) and observed that the business of leasing as well as financing were being regularly carried out by the respondent as supported by the objects in the Memorandum of Association. 9)The above finding of the Commissioner of Income Tax (Appeals) and the Tribunal are essentially findings of fact and do not raise any substantial question of law. It is not the case of the appellant that the findings are perverse. Consequently, Question (2) and (3) do not raise substantial question of law . Regarding Question (4) : 10)The Assessing Officer did not allow deduction on account of administration expenses of Rs.23.15lacs and depreciation of Rs.9.39 lacs on the ground that the above expenses were not related to construction of any one building but of a general nature. carried out by the respondent as supported by the objects in the Memorandum of Association. 9)The above finding of the Commissioner of Income Tax (Appeals) and the Tribunal are essentially findings of fact and do not raise any substantial question of law. It is not the case of the appellant that the findings are perverse. Consequently, Question (2) and (3) do not raise substantial question of law . Regarding Question (4) : 10)The Assessing Officer did not allow deduction on account of administration expenses of Rs.23.15lacs and depreciation of Rs.9.39 lacs on the ground that the above expenses were not related to construction of any one building but of a general nature. 11)The Commissioner of Income Tax (Appeals) deleted the disallowance on the ground that the administration expenses and depreciation in respect of expenses not attributable to any particular project cannot be a part of the project activity and that therefore these deductions have to be allowed as general business expenditure. 12) The aforesaid finding of the Commissioner of Income Tax (Appeals) and the Tribunal are findings of fact. In fact the Tribunal records that the department's representative was unable to controvert the findings in the order of the Commissioner of Income Tax (Appeals).Therefore, Question (4) does not raise any substantial question of law for consideration of this Court. Regarding Question (5) : 13) The Assessing Officer added a sum of Rs.54.54 lacs on the ground that the respondent failed to prove the genuineness of the sundry creditors and credited the above amount in its books of account under Section 68 of the Income Tax Act, 1961. 14)The Commissioner of Income Tax (Appeals) held that the addition of Rs.54.54 lacs was uncalled for as nothing was brought on record by the Assessing Officer to establish that the creditors were not genuine. 15) The Tribunal dismissed the revenue's appeal by holding that there was no dispute that the books of accounts were produced by the respondent for the examination of the Assessing officer and he found that the same were in order. Further no enquiry in respect of the details of the sundry creditors were made by the Assessing Officer and the addition was purely on the basis of surmises. 16) Therefore, the aforesaid issue is a pure question of fact and both the appellate authorities have reached a concurrent finding that the sundry creditors in the books of the respondent are genuine. Consequently, question (5) does not raise a substantial question of law. Regarding Question (6): 17)The Assessing Officer added an amount of Rs.33.92 lacs under Section 68 of the said Act by disallowing liabilities for expenses. This was on the ground that the respondent had failed to furnish details with proper evidence. The Commissioner of Income Tax (Appeals) held that the respondent had produced its books of accounts for verification before the Assessing officer and the Assessing Officer had not produced any material to show that the liabilities claimed by the respondent were not genuine. In the circumstances, the Commissioner of Income Tax (Appeals) deleted the amount of Rs.33.92 lacs. 18) The Tribunal concluded that the Assessing Officer had made the addition of Rs.33.92 lacs without considering the details filed during the assessment proceedings by the respondent. In fact, the Tribunal found that the respondent had filed a statement showing the names and the reasons for the liabilities with the Assessing Officer. However, the Assessing officer made no enquiry by issuing any summons to the concerned parties under Section 131 or under Section 133(6) of the said Act. The Tribunal held that the addition has been made in a mechanical manner and upheld the order of the Commissioner of Income Tax (Appeals). 18) The Tribunal concluded that the Assessing Officer had made the addition of Rs.33.92 lacs without considering the details filed during the assessment proceedings by the respondent. In fact, the Tribunal found that the respondent had filed a statement showing the names and the reasons for the liabilities with the Assessing Officer. However, the Assessing officer made no enquiry by issuing any summons to the concerned parties under Section 131 or under Section 133(6) of the said Act. The Tribunal held that the addition has been made in a mechanical manner and upheld the order of the Commissioner of Income Tax (Appeals). 19)The aforesaid is a finding of fact arrived at concurrently by the Commissioner of Income Tax (Appeals) and the Tribunal. It is not the case of the appellant that the finding is perverse. In these circumstances, Question (6) does not raise a substantial question of law. 20) ( M.S. SANKLECHA, J. ) ( S. J. VAZIFDAR, J.)