LAXMI INDUSTRIAL ESTATE, MUMBAI v. ACIT 24(3), MUMBAI

1 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY JM AND SHRI MANOJ KUMAR AGGARWAL AM 1. ./ I.T.A. NO.6977/MUM/2016 ( / ASSESSMENT YEAR:2007-08) & 2. ./ I.T.A. NO.4198/MUM/2017 ( / ASSESSMENT YEAR:2008-09) & 3. ./ I.T.A. NO.6978/MUM/2016 ( / ASSESSMENT YEAR:2010-11) & 4. ./ I.T.A. NO.6979/MUM/2016 ( / ASSESSMENT YEAR:2011-12) & 5. ./ I.T.A. NO.4199/MUM/2017 ( / ASSESSMENT YEAR:2012-13) & 6. ./ I.T.A. NO.4200/MUM/2017 ( / ASSESSMENT YEAR:2013-14) LAXMI INDUSTRIAL ESTATE 99 PRABHU NIWAS JAWAHAR NAGAR ROAD NO.15 GOREGAON (W) MUMBAI-400 062. / VS. A CIT - 31(2) PRATYAKSHKAR BHAVAN ROOM NO.708 C-11 BANDRA KURLA COMPLEX BANDRA MUMBAI-400 051. WX './'./PAN/GIR NO. AAAFL-1382-N ( XZ / APPELLANT ) : ( [\XZ / RESPONDENT ) XZ]/ APPELLANT BY : SHRI REEPAL TRALSHAWALA LD. AR [\XZ] / RESPONDENT BY : SHRI SATISH C HANDRA RAJORE - LD. DR 2 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 DATE OF HEARING : 27/08/2019 DATE OF PRONOUNCEMENT : 21/11/2019 / O R D E R PER BENCH: - 1.1 AFORESAID APPEALS BY ASSESSEE FOR VARIOUS ASSES SMENT YEARS (AY) CONTEST SEPARATE ORDERS OF FIRST APPELLATE AUTHORIT Y ON CERTAIN COMMON GROUNDS OF APPEAL. SINCE COMMON ISSUES WERE INVOLVE D THE APPEALS WERE HEARD TOGETHER AND NOW BEING DISPOSED-OFF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE & BREVITY. 1.2 FOR EASE OF REFERENCE THE DETAILS OF ASSESSMEN T FRAMED IN THESE YEARS AND THE IMPUGNED ORDERS COULD BE TABULATED AS FOLLOWS: - NO. ASSESSMENT YEAR ASSESSMENT FRAMED U/S DATE OF ASSESSMENT ORDER DAT E OF ORDER PASSED BY FIRST APPELLATE AUTHORITY 1. 2007-08 143(3) R.W.S. 147 05/03/2015 30/08/2016 2. 2008-09 143(3) R.W.S. 147 18/02/2016 06/04/2017 3. 2010-11 143(3) 26/03/2013 30/08/2016 4. 2011-12 143(3) 21/03/2014 30/08/2016 5. 2012-13 143(3) 27/03/2015 06/04/2017 6. 2013-14 143(3) 18/02/2016 06/04/2017 1.3 WE TAKE-UP AY 2011-12 AS THE LEAD YEAR SINCE TH E PROCEEDINGS IN THIS YEAR FORMS THE BASIS FOR REOPENING OF ASSESSMENT FO R EARLIER YEARS. THE ASSESSEE HAS RAISED ADDITIONAL GROUNDS OF APPEAL QUA LEGAL & PROFESSIONAL FEES SINCE THE SAME IS STATED TO HAVE REMAINED TO B E RAISED DUE TO AN INADVERTENT ERROR. WE FIND THAT THIS ISSUE WAS SUBJ ECT MATTER OF ASSESSEES 3 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 APPEAL BEFORE FIRST APPELLATE AUTHORITY AND THEREFO RE FINDING FORCE IN THE SUBMISSIONS WE TAKE THE SAME ON RECORD AS GROUND N O. D. FINALLY THE GROUNDS AS WELL AS ADDITIONAL GROUNDS READ AS UNDER : - A) TREATING REVENUE EXPENSES AS CAPITAL EXPENSES 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE INTER EST EXPENSES OF RS.3 19 23 663/- AS CAPITAL EXPENSES AS AGAINST REVENUE EXPENSES CLA IMED IN THE RETURN OF INCOME ON THE GROUND THAT THE SAME RELATES TO THE PROJECT COS T TO BE ADDED TO WIP WITHOUT APPRECIATING THE FACT THAT WITH RESPECT TO INTEREST EXPENSE THE APPELLANT HAS BEEN FOLLOWING THE SAID METHOD OF ACCOUNTING AND TAXATIO N SINCE PAST SEVERAL YEARS I.E. FROM AY 1991-92 ONWARDS AND HAVE BEEN ACCEPTED ALL ALONG BY THE DEPARTMENT IN REGULAR SCRUTINY ASSESSMENT FOR EARLIER YEARS AND HENCE TH E INTEREST EXPENSES BE DIRECTED TO BE TREATED AND ACCEPTED AS REVENUE EXPENSES. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE T HAT PRINCIPLE OF CONSISTENCY NEEDS TO BE ADOPTED AND MORE PARTICULARLY WHEN THERE IS NO OVER ALL TAX IMPACT AND NO LOSS TO REVENUE BY CHANGE IN METHOD OF TAXATION AND HENCE THE INTEREST EXPENSES CAPITALIZED IS WITHOUT ANY BASIS UNJUSTIFIED AND LIABLE TO BE TREATED AS REVENUE EXPENSES. 3. WITHOUT PREJUDICE TO THE ABOVE THE LEARN ED CIT(A) FAILED TO APPRECIATE THAT THE INTEREST EXPENSES IS REVENUE EXPENSE AND IN THE NAT URE OF PERIODIC COST AND WITHOUT SPECIFICALLY RELATED TO CONSTRUCTION OF ANY PARTICU LAR PROJECT / BUILDING AND HENCE IS CORRECTLY REFLECTED AS REVENUE EXPENSES AND THUS C APITALIZING THE SAME IS UNJUSTIFIED AND MAY BE DELETED. B) WITHOUT PREJUDICE TO ABOVE & WITHOUT ACCEPTING WIP OUGHT TO BE RECOMPUTED AND PROFIT RE-WORKED ON THE BASIS OF REVISED WIP 4. WITHOUT PREJUDICE TO THE ABOVE AND WITHOU T ACCEPTING THE LD. CIT(A) OUGHT TO HAVE DIRECTED THE AO TO RE-WORKED THE WIP OF THE AP PELLANT AND ALLOWED THE SAME TO BE CARRIED FORWARD TO SUBSEQUENT YEARS SO AS TO GIVE B ENEFIT OF DEDUCTION OF THE SAME AND HENCE INSTEAD OF ALLEGING THE APPELLANT FOR NOT SU BMITTING THE REVISED COMPUTATION DIRECTION OUGHT TO BE GIVEN TO THE AO TO RE-WORK TH E FIGURE OF WIP TO BE ALLOWED TO THE APPELLANT. 5. THE LD. CIT(A) FAILED TO APPRECIATE THAT IT WA S FOR THE AO TO GIVE LOGICAL CONCLUSION BY RE-WORKING THE INCOME OF THE APPELLAN T ONCE THE INTEREST EXPENSES WERE TREATED AS CAPITAL EXPENSES AND ADDED TO WIP SINCE THE PROPORTIONATE WIP IS TO BE REDUCED FROM THE SALE OF GALAS CONSTRUCTED AND THER EFORE ONCE THE WIP IS REVISED THE PROFIT FROM SALE OF GALAS WOULD ALSO HAVE TO BE RE- WORKED AND HENCE ONLY CONSIDERING THE INTEREST EXPENSES AS CAPITAL EXPENSES WITHOUT G IVING FULL EFFECT TO THE SAME IS WITHOUT ANY JUSTIFICATION AND THE PROFIT MAY BE REC OMPUTED CONSIDERING THE REVISED WIP. C) ADDITION OF LOFT REGULARIZATION CHARGES RS.35 17 297/- 6. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION MADE TOWARDS LOFT REGULARIZATION CHARGES AMOUNTING TO RS.35 17 297/- WITHOUT APPRECI ATING THE FACT THAT THESE EXPENSES WERE INCURRED FOR AND ON BEHALF OF THE GALA OWNERS / PURCHASERS OF GALA IN THE INDUSTRIAL ESTATE WHICH WERE REIMBURSED BY THEM TO THE APPELL ANT AND INSTEAD OF NETTING OUT THE RECEIPT AND PAYMENT THE DISCLOSURE WAS MADE SEPARA TELY IN THE PROFIT & LOSS ACCOUNT 4 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 AND HENCE THE ADDITION CONFIRMED OF LOFT REGULARIZ ATION CHARGES OF RS.35 17 297/- IS WITHOUT ANY JUSTIFICATION AND LIABLE TO BE DELETED. 7. THE LD. CIT(A) FAILED TO APPRECIATE THAT RECEIPT OF LOFT REGULARIZATION CHARGES WAS DULY REFLECTED IN THE PROFIT AND LOSS ACCOUNT IN IN COME SIDE AND SINCE THIS IS NOT THE INCOME OF THE APPELLANT THE SAME OUGHT TO HAVE BEE N NETTED OUT WITH THE PAYMENTS MADE (REFLECTED AS EXPENSES IN THE PROFIT AND LOSS ACCOUNT) SINCE THESE ARE NEITHER THE INCOME OR EXPENSES OF THE APPELLANT AND HENCE THE DISALLOWANCE CONFIRMED OF THE LOFT REGULARIZATION CHARGES SHOWN AS EXPENSES AND ALSO T AXING THE AMOUNT RECEIVED AS INCOME OF THE APPELLANT IS WITHOUT ANY JUSTIFICATIO N AND THE DISALLOWANCE MAY BE DELETED. D) TREATING LEGAL & PROFESSIONAL FEES AS CAPITAL EX PENSES INSTEAD OF REVENUE EXPENSES 8. THE LEARNED CIT(A) ERRED IN CONFIRMING THE LEGAL & PROFESSIONAL FEE EXPENSES OF RS.17 79 779/- AS CAPITAL EXPENSES AS AGAINST REVEN UE EXPENSES CLAIMED IN THE RETURN OF INCOME ON THE GROUND THAT THE SAME RELATES TO TH E PROJECT COST TO BE ADDED TO WIP WITHOUT APPRECIATING THE FACT THAT THESE EXPENSES A RE INCURRED IN GENERAL AND NOT ANY BUILDING OR GALA SPECIFIC ARE REVENUE EXPENSES AND HENCE THE LEGAL & PROFESSIONAL FEES EXPENSES BE DIRECTED TO BE TREATED AS REVENUE EXPEN SES. 9. WITHOUT PREJUDICE TO THE ABOVE AND WITHOU T ADMITTING AND ACCEPTING THE LD. CIT(A) OUGHT TO HAVE DIRECTED THE AO TO RE-WORK THE WIP OF THE APPELLANT AND ALLOW PROPORTIONATE CASH AGAINST SALES OF THE YEAR AND BA LANCE TO BE CARRIED FORWARD TO SUBSEQUENT YEARS SO AS TO GIVE BENEFIT OF DEDUCTION OF THE SAME AND HENCE INSTEAD OF ALLEGING THE APPELLANT FOR NOT SUBMITTING THE REVIS ED COMPUTATION DIRECTION OUGHT TO BE GIVEN TO THE AO TO RE-WORK THE FIGURE OF WIP TO BE ALLOWED TO THE APPELLANT. 2.1 FACTS IN BRIEF ARE THAT THE ASSESSEE BEING RESI DENT FIRM SATED TO BE ENGAGED AS DEVELOPER OF INDUSTRIAL GALAS WAS ASSESS ED FOR YEAR UNDER CONSIDERATION U/S 143(3) ON 21/03/2014 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.78.71 LACS AFTER CERT AIN ADDITIONS / DISALLOWANCES AS AGAINST RETURNED LOSS OF RS.275.79 LACS FILED BY THE ASSESSEE ON 28/09/2011. 2.2 DURING ASSESSMENT PROCEEDINGS IT TRANSPIRED TH AT THE ASSESSEE WAS CONSTRUCTING INDUSTRIAL GALAS AT OSHIWARA ANDHERI (WEST) MUMBAI AND REFLECTED SALE OF RS.99.95 LACS DURING THE YEAR UND ER CONSIDERATION. THE ASSESSEE HAD SHOWN CLOSING WORK-IN-PROGRESS (WIP) A GAINST VARIOUS BUILDINGS AT RS.20.61 CRORES AND REFLECTED CERTAIN ADVANCE FOR TDR AT 5 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 RS.15.06 CRORES. THE ASSESSEE HAD INTER-ALIA CLAIMED DEDUCTION OF INTEREST AND LEGAL & PROFESSIONAL EXPENSES FOR RS.3 19.23 LACS & RS.17.79 LACS RESPECTIVELY AS REVENUE EXPENDITURE IN THE PRO FIT & LOSS ACCOUNT. THESE EXPENSES IN THE OPINION OF LEARNED AO WERE TO BE TREATED AS CAPITAL EXPENSES. IN DEFENSE THE ASSESSEE SUBMITTED THAT E XPENSES DIRECTLY RELATED TO PROJECT WERE ALREADY CAPITALIZED. SINCE THERE WERE 2-3 PROJECTS SIMULTANEOUSLY CARRIED OUT BY THE ASSESSEE AND HENC E IT WAS DIFFICULT TO APPORTION THE INTEREST TO VARIOUS PROJECTS. IT WAS ALSO ARGUED THAT BORROWED FUNDS WERE UTILIZED FOR WIP WHICH WAS A CURRENT ASS ET FOR THE ASSESSEE AND THEREFORE THE INTEREST EXPENDITURE WAS TO BE TREAT ED AS REVENUE EXPENDITURE. 2.3 HOWEVER NOTICING THAT THE ASSESSEE HAD OUTSTAN DING LOANS OF RS.22.48 CRORES AT YEAR-END AND ALSO ADVANCES FOR B OOKING FOR RS.6.55 CRORES AND THESE FUNDS WERE UTILIZED FOR WIP AND PU RCHASE OF TDR AND THEREFORE THE INTEREST EXPENDITURE AS WELL AS PROF ESSIONAL EXPENSES IN THE OPINION OF LD. AO BEING DIRECTLY RELATABLE TO BE P ROJECT WERE TO BE CAPITALIZED. ACCORDINGLY IT WAS HELD THAT EXPENDIT URE AGGREGATING TO RS.337.03 LACS WAS CAPITAL EXPENDITURE. 2.4 ANOTHER ADDITION STEM FROM THE FACT THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTED THAT THE ASSESSEE DEBITED LOSS ON ACCOUNT OF LOFT REGULARIZATION CHARGES FOR RS.35.17 LACS STATED TO BE PAID TOWARDS ARCHITECT / CONSULTANTS FEES DEVELOPMENT CHARGES PENALTY M CGM FEES ETC. THE PARTICULARS OF THE SAME HAS ALREADY BEEN TABULATED ON PAGE-3 OF THE QUANTUM ASSESSMENT ORDER. THE ASSESSEE EXPLAINED TH AT THE SAID 6 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 EXPENDITURE WAS REIMBURSABLE IN NATURE. HOWEVER NO T SATISFIED TREATING THE EXPENDITURE TO BE PENAL IN NATURE THE SAME WAS DIS ALLOWED U/S 37. 3.1 BEFORE LEARNED FIRST APPELLATE AUTHORITY WITH RESPECT TO INTEREST & LEGAL EXPENSES THE ASSESSEE RAISED THE PLEA OF CONSISTEN CY AND SUBMITTED THAT IT WAS FOLLOWING CONSISTENT METHOD OF ACCOUNTING SINCE PAST MANY YEARS FOR INTEREST COSTS AND THEREFORE THE SAME WERE TO BE A LLOWED SINCE INTEREST COST WAS PERIODIC COST AND NOT RELATABLE TO ANY SPE CIFIC PROJECT / BUILDING. HOWEVER OBSERVING THAT THE ASSESSEE WAS FOLLOWING PROJECT COMPLETION METHOD OF ACCOUNTING LEARNED CIT(A) HELD THAT CLOS ING WIP SHOULD INCLUDE RELATED COSTS INCLUDING INTEREST COST ALSO. THE JUD GMENTS RELIED UPON BY THE ASSESSEE WERE DISTINGUISHED ON FACTUAL MATRIX. RATH ER RELIANCE WAS PLACED ON THE DECISION OF SPECIAL BENCH OF TRIBUNAL RENDER ED IN WALL STREET CONSTRUCTION LTD. V/S JCIT 101 ITD 156 TO ARRIVE AT CONCLUSION THAT INTEREST IDENTIFIABLE WITH THE PROJECT SHOULD BE AL LOWED IN THE YEAR WHEN THE PROJECT WAS COMPLETED AND CORRESPONDING INCOME FROM THAT PROJECT WAS OFFERED FOR TAXATION. 3.2 THE PLEA OF CONSISTENCY WAS REJECTED AT PARA 5. 3 BY OBSERVING AS UNDER: - 5.3 AS REGARDS THE CLAIM OF THE ASSESSEE THAT IT IS FOLLOWING THE SAME METHOD OF ACCOUNTING SINCE A NUMBER OF YEARS IT IS HELD THAT THE SAME IS WITHOUT ANY SUBSTANCE. IN THIS CONNECTION IT IS NECESSARY TO NOTE THAT THE A SSESSEE IS THE OWNER OF A 1 10 000 SQUARE YARD PLOT OF LAND AT VILLAGE OSHIWARA TALUK A ANDHERI AND THE ASSESSEE WAS PERMITTED TO DEVELOP THE LAND FOR CONSTRUCTION OF I NDUSTRIAL UNITS IN ABOUT 35 PHASES ON 1971 OR SO. TILL 2009 THE ASSESSEE HAD DEVELOPED 24 PHASES. THE ASSESSEE HAD BEEN MAKING BUILDING AND INTER ALIA CONSTRUCTING SEVERAL GALAS IN EACH OF THE BUILDINGS SPREAD OVER A BASEMENT AND SIX UPPER FLOORS). THE ASSESSEE IS DOING THE DEVELOPMENT WORK IN A PIECEMEAL FASHION (BUILDING BY BUILDING APPROACH) AND IN ESSENCE HAS TREATED THE DEVELOPMENT WORK AS SEVERAL SEPARATE PROJECTS UNDER THE UMBRELLA OF LAXMI INDUSTRIAL ESTATE. THIS CAN BE SEEN FROM THE FACT THAT THE ASS ESSEE HAS GOT REGISTERED SEVEN 7 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 DIFFERENT CO-OPERATIVE SOCIETIES TILL 2009 TO MANAG E THE INDUSTRIAL UNITS. THE TOTAL BUILDING TO BE CONSTRUCTED ARE 12. FOR ALL PRACTICAL PURPOSE S EACH CONSTRUCTION OF THE BUILDING IS AN INDEPENDENT PROJECT AND THE ASSESSEE CANNOT CLAI M THAT THE LOAN FUNDS ARE FUNGIBLE. THE ASSESSEE WAS REQUIRED TO MAINTAIN PROJECT WISE ACCOUNTS WHICH IT HAS NOT DONE. ALSO THE ASSESSEE CANNOT CLAIM THAT THE ONGOING CON STRUCTIONS CARRIED OUT BY THE ASSESSEE SINCE THE BEGINNING OF ITS CONSTRUCTION AC TIVITIES CONSTITUTES ONE UNIFIED PROJECT. SUCH A CLAIM WOULD BE LUDICROUS. IN ANY CA SE THE ONUS WAS ON ASSESSEE TO PROVE THE SOURCE AND APPLICATION OF THE LOAN FUNDS WHICH IT HAS NOT DONE. UNDER THE CIRCUMSTANCES IT IS CONFIRMED THAT SINCE THE LOAN FUNDS WERE USED FOR THE ONGOING PROJECTS OF THE ASSESSEE THEY WERE REQUIRED TO BE C APITALIZED. 3.3 PROCEEDING FURTHER IT WAS ALSO NOTED THAT TH E ASSESSEE HAD NOT GIVEN DETAILS OF LEGAL & PROFESSIONAL CHARGES PAID AND LE AD EVIDENCES THAT THE EXPENSES WERE INCURRED FOR THE PURPOSES OF ONGOING WIP ONLY. REGARDING ASSESSEES PLEA THAT LD. AO FAILED TO IDENTIFY THE BUILDING UNDER CONSTRUCTION AND INTEREST COST ATTRIBUTABLE TO THEM IT WAS HELD THAT ONUS WAS ON ASSESSEE TO ESTABLISH THE SAME IN TERMS OF SECTION 114 OF THE INDIAN EVIDENCE ACT 1872 AND THEREFORE THE VALUE OF WIP COULD NOT BE RE-WORKED IN THE ABSENCE OF ANY WORKINGS SUBMITTED BY THE ASS ESSEE. FINALLY THE ACTION OF LD. AO IN TREATING THE EXPENDITURE TO BE CAPITAL IN NATURE WAS UPHELD. 3.4 REGARDING DISALLOWANCE OF LOFT REGULARIZATION C HARGES UPON PERUSAL OF AGREEMENT OF SALE IT WAS OBSERVED THAT THE AGRE EMENT PROHIBITED THE BUYER TO MAKE ANY ADDITION OR ALTERATION IN THE SAI D PREMISES WITHOUT OBTAINING THE PRIOR WRITTEN PERMISSION OF THE ASSES SEE WHICH WAS IN CONTRAST TO THE AVERMENTS MADE BY THE ASSESSEE THAT THE RESI DENTS THEMSELVES MADE MEZZANINE FLOORS IN THEIR INDIVIDUAL GALAS AND WERE SERVED WITH INDIVIDUAL SHOW CAUSE NOTICES BY MUNICIPAL CORPORAT ION AND APPROACHED THE ASSESSEE TO LIAISE WITH THE AUTHORITIES TO GET THE LOFTS REGULARIZED. AS PER THE TERMS OF SUPPLEMENTARY AGREEMENT ENTERED INTO B Y THE ASSESSEE WITH 8 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 THE GALA OWNERS THE ASSESSEE WAS REQUESTED TO UTIL IZE THE BALANCE FSI / TDR AVAILABLE WITH IT TO REGULARIZE THE UNAUTHORIZE D CONSTRUCTION AGAINST CERTAIN CONSIDERATION. THE ASSESSEE TOOK MONEY FROM THE GALA OWNERS TO MEET THE EXPENSES INVOLVED FOR REGULARIZATION OF TH E LOFTS AND NET SURPLUS WAS OFFERED FOR TAX. HOWEVER NOTICING THAT ASSESSE ES APPROVAL WAS NECESSARY BEFORE MAKING ANY STRUCTURAL CHANGES THE SAID SUBMISSIONS COULD NOT FIND FAVOR WITH LD. CIT(A). FURTHER FIND ING THAT THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE WAS NOT CLEAR AND THE EXPENDITURE PERTAINED TO FINANCIAL YEAR 2009-10 AND THEREFORE THE SAME COULD NOT BE ALLOWED DUE TO LACK OF EVIDENCES AND EXPLANATIONS. FINALLY THE ACTION OF LD. AO IN TREATING THE EXPENDITURE AS CAPITAL EXPENDITU RE WAS UPHELD. AGGRIEVED THE ASSESSEE IS UNDER APPEAL BEFORE US. 4. WE HAVE AND CONSIDERED THE RIVAL SUBMISSIONS WR ITTEN AS WELL AS ORAL AND DELIBERATED ON JUDICIAL PRONOUNCEMENTS & THE MA TERIAL PLACED BEFORE US. 5.1 FIRST WE TAKE UP THE ISSUE OF CAPITALIZATION O F EXPENDITURE. AS NOTED BY LD. CIT(A) THE ASSESSEE WAS CONSTRUCTING 12 BUI LDINGS ON A LARGE PIECE OF LAND. EACH BUILDING COMPRISED-OFF OF NUMBER OF G ALAS WHICH WERE BEING SOLD BY THE ASSESSEE UNDER SEPARATE SALE AGREEMENT TO DIFFERENT BUYERS. AS ON 31/03/2007 THE BUILDINGS WERE STATED TO BE AT V ARIOUS STAGES OF CONSTRUCTION AS TABULATED BELOW: - NO. BUI LDING NO. NO. OF GA LAS REMARKS 1. 1. 58 COMPLETED 2. 2. 48 COMPLETED 3. 3. 45 COMPLETED 4. 4. 38 COMPLETED 9 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 5. 5. 162 UNDER-CONSTRUCTION 6. 6. 46 COMPLETED 7. 7. 65 COMPLETED 8. 8. 274 UNDER-CONSTRUCTION 9. 9. 343 UNDER-CONSTRUCTION 10. 11 (NEW) EARLIER (10 12 14) NO CONSTRUCTION THE LD. AR HAS PLEADED THAT THE ASSESSEE IS CARRYIN G ON SAME BUSINESS FOR THE LAST MORE THAN 30 YEARS AND CONSISTENTLY FOLLOW ING THE SAME METHOD OF ACCOUNTING SINCE THE VERY BEGINNING. THIS METHOD OF ACCOUNTING IS THAT UPON CONSTRUCTION OF GALA SALE AGREEMENT IS EXECUT ED AND POSSESSION IS HANDED OVER AND THE SALE IS RECOGNIZED IN RESPECT O F SUCH GALA AND PROFIT OFFERED TO TAX. IN OTHER WORDS THE REVENUE IS RECO GNIZED IMMEDIATELY UPON SALE OF A GALA IRRESPECTIVE OF THE STATUS OF BUILD ING IN WHICH IT IS SITUATED. IT HAS FURTHER BEEN SUBMITTED THAT ONLY ACTUAL CONSTRU CTION RELATED EXPENSES ARE DEBITED TO WORK-IN-PROGRESS (WIP) ACCOUNT OF A PARTICULAR BUILDING AND ALL OTHER COSTS INCLUDING INTEREST COST IS CONSIDER ED AS PERIODIC COSTS AND CLAIMED AS REVENUE EXPENDITURE IN THE PROFIT & LOSS ACCOUNT. THIS PECULIAR ACCOUNTING METHODOLOGY IS STATED TO HAVE BEEN FOLLO WED BY THE ASSESSEE AND ALSO ACCEPTED BY REVENUE UNDER VARIOUS SCRUTINY ASSESSMENTS SINCE AY 1991-92 ONWARDS. REGARDING DIFFICULTY IN IDENTIF YING AND APPORTIONING THE INTEREST COST TO A PARTICULAR BUILDING / GALAS LD. AR HAS PLEADED THAT 2 TO 3 PROJECTS WERE SIMULTANEOUSLY BEING CARRIED OUT BY THE ASSESSEE AT ANY GIVEN POINT OF TIME MAKING IT IMPOSSIBLE TO EXACTLY ALLOCATE THE INTEREST EXPENSES TO ANY PARTICULAR PROJECT AND NO SUCH EXER CISE WAS EVER CARRIED OUT SINCE THE BEGINNING AS THIS METHOD WAS ACCEPTED BY THE DEPARTMENT 10 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 ALSO. SINCE LOANS WERE BORROWED IN EARLIER YEARS AN D ARE CARRIED FORWARD FROM YEAR TO YEAR WITH ADDITIONS AND DELETIONS EVER Y YEAR THE SAID FACT WOULD MAKE IT IMPOSSIBLE TO IDENTIFY & APPORTION TH E COST TO A PARTICULAR BUILDING OR GALA. IN FACT THE REVENUE WAS RECOGNIZ ED IMMEDIATELY UPON SALE OF A PARTICULAR GALA IRRESPECTIVE OF THE CONSTRUCTI ON STAGE OF THE CORRESPONDING BUILDING. AGAINST THE REVENUE OFFERED PROPORTIONATE WIP AND PERIODIC EXPENSES ARE CLAIMED INCLUDING INTEREST EX PENSES. UPON DUE CONSIDERATION WE FIND SUBSTANTIAL FORCE AND LOGIC IN THESE SUBMISSIONS SINCE THE STATED FACTS AS AVERRED BY LD. AR HAS REM AINED UNCONTROVERTED BY REVENUE BEFORE US. 5.2 ANOTHER PLEA RAISED BY LD. AR IS THE PLEA OF TA X NEUTRALITY SINCE THE EXERCISE OF DISTURBING THE ACCOUNTING METHODOLOGY W OULD ULTIMATELY BE TAX NEUTRAL AND THERE WOULD BE NO IMPACT ON FINAL TAX L IABILITY AND THEREFORE PLEA HAS BEEN RAISED NOT TO DISTURB THE SAME. TO SUPPORT THESE SUBMISSIONS RELIANCE HAS BEEN PLACED ON FOLLOWING BINDING JUDIC IAL PRECEDENTS: - (I) CIT V/S EXCEL INDUSTRIES LTD. -2013 358 ITR 295 HONBLE SUPREME COURT (II) CIT V/S NAGRI MILLS CO. LTD. 1958 33 ITR 681 HONBLE BOMBAY HIGH COURT (III) CIT V/S VISHNU INDUSTRIAL GASES PVT. LTD. I T REF. NO. 229 (DELHI) OF 1988 DATED 06/05/2008 TO SUPPORT THE PLEA OF CONSISTENCY RELIANCE HAS BE EN PLACED ON FOLLOWING JUDICIAL PRONOUNCEMENTS: - (I) GODREJ & BOYCE MFG. CO. LTD. V/S DCIT -2017 394 ITR 449- HONBLE SUPREME COURT (II) RADHASOAMI SATSANG V/S CIT 1991 193 ITR 321 HONBLE SUPREME COURT (III) CIT V/S DARIUS PANDOLE- 2010 330 ITR 485- HON BLE BOMBAY HIGH COURT 11 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 5.3 UPON DUE CONSIDERATION WE ARE INCLINED TO ACCE PT THE ARGUMENT THAT THE WHOLE EXERCISE OF DISTURBING THE ACCOUNTING MET HODOLOGY WOULD ULTIMATELY BE TAX NEUTRAL SINCE THE GENUINENESS OF THE EXPENDITURE IS NOT UNDER DISPUTE. EVEN IF THE INTEREST EXPENDITURE IS ALLOWED TO BE CAPITALIZED AS URGED BY THE REVENUE THE ASSESSEE WILL ULTIMATE LY GET THE DEDUCTION OF THE EXPENDITURE ON PROPORTIONATE BASIS IN VARIOUS Y EARS CORRESPONDING TO YEARS IN WHICH THE GALAS HAVE BEEN SOLD BY THE ASSE SSEE AND OFFERED TO TAX. FURTHER WE ARE OF THE CONSIDERED OPINION THAT THER E SHOULD BE FINALITY TO THE ISSUES AND FACTS BEING IDENTICAL THE REVENUE WOULD BE DEBARRED FROM CHANGING ITS STAND AND UNSETTLE THE SETTLED POSITIO N. WE ARE QUITE CONSCIOUS OF THE FACT THAT RES-JUDICATE IS NOT APPLICABLE TO INCOME TAX PROCEEDINGS AND EACH YEAR OF ASSESSMENT IS SEPARATE UNIT HOWEV ER THERE IS A NEED FOR CONSISTENCY AND EXISTENCE OF STRONG AND COMPELLING REASONS FOR DEPARTURE FROM SETTLED POSITION HAS TO BE SPELT OUT AS OBSERV ED BY HONBLE SUPREME COURT IN GODREJ & BOYCE MFG. CO. LTD. (2017 394 ITR 449). IN FACT IT IS NOTED THAT THE AY 2009-10 WAS REOPENED BY THE REVEN UE HOWEVER INTEREST EXPENDITURE CLAIMED AS PERIODIC COST WAS NOT DISTUR BED WHILE FRAMING THE ASSESSMENT. SIMILARLY THE ASSESSMENT FOR AY 2014-1 5 WAS ALSO FRAMED U/S 143(3) R.W.S. 144 WHEREIN THE SAID POSITION HAS AGA IN NOT BEEN DISTURBED BY THE REVENUE. THEREFORE TREATING THE SIMILAR EXPEND ITURE AS PERIODIC COST IN FEW YEARS WHILE DISTURBING THE SAME SPORADICALLY IN OTHER YEARS COULD NOT BE HELD TO BE JUSTIFIED. THE HONBLE SUPREME COURT IN CIT V/S BILAHARI INVESTMENT LTD. 2008 299 ITR 1 HELD THAT EVERY ASSESSEE WAS ENTITLED TO ARRANGE ITS AFFAIRS AND FOLLOW THE METHOD OF ACCOUN TING WHICH THE 12 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 DEPARTMENT HAS EARLIER ACCEPTED. IT IS ONLY IN THOS E CASES WHERE THE DEPARTMENT RECORDS A FINDING THAT THE METHOD ADOPTE D BY THE ASSESSEE RESULTS IN DISTORTION OF PROFITS THE DEPARTMENT CA N INSIST ON SUBSTITUTION OF THE EXISTING METHOD. PARTICULARLY WHEN THE WHOLE EX ERCISE WOULD BE REVENUE NEUTRAL NO INTERFERENCE WOULD BE WARRANTED. THE HO NBLE BOMBAY HIGH COURT IN CIT V/S DARIUS PANDOLE (330 ITR 485) SIMILARLY OBSERVED AS UNDER: - 3. BOTH FOR THE ASSESSMENT YEARS 1997-98 AND 2002-03 SCRUTINY ASSESSMENTS WERE FRAMED UNDER SECTION 143(3). IN THE COURSE OF THE A SSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR 2002-03 A NOTICE WAS ISSUED TO THE ASSESSEE UNDER SECTION 142(1) ON NOVEMBER 7 2003 IN WHICH THE ASSESSEE WAS CALLED U PON TO CLARIFY AS TO WHY THE LOSS ON THE SALE OF SHARES HAD BEEN DEBITED TO THE PROFI T AND LOSS ACCOUNT AS A BUSINESS EXPENSE. THE ASSESSEE SUBMITTED A REPRESENTATION ON DECEMBER 16 2003 IN SUPPORT OF HIS CONTENTION THAT HIS BUSINESS CONSISTED OF THE P URCHASE AND SALE OF SHARES. THE LETTER OF THE ASSESSEE RECORDED THAT DURING THE COURSE OF DISCUSSIONS THE ASSESSING OFFICER HAD POINTED OUT THAT HE INTENDED TO TREAT THE LOSS UNDER THE HEAD 'INCOME FROM CAPITAL GAIN' MAINLY ON ACCOUNT OF THE FACT THAT HIS STOCK OF SHARES HAD BEEN SHOWN UNDER THE HEAD 'INVESTMENTS' IN THE BALANCE-SHEET. THE ASSESS EE SUBMITTED ON THE BASIS OF PRECEDENT THAT THE TRADING RECEIPT WOULD NOT CEASE TO BE SO BY BEING WRITTEN UP IN THE BOOKS OF ACCOUNT IN A PARTICULAR MANNER AND THAT TH E ENTRIES IN THE BOOKS OF ACCOUNT COULD NOT ALTER OR AFFECT THE CHARACTER OF THE TRAN SACTION. THE SAME POSITION OBTAINED FOR THE ASSESSMENT YEAR 1997-98 WHERE A SIMILAR QUERY W AS RAISED BY THE ASSESSING OFFICER TO WHICH THE ASSESSEE HAD REPLIED ON SEPTEM BER 18 1999. ASSESSMENTS WERE THEREAFTER COMPLETED FOR THE ASSESSMENT YEARS 1997- 98 AND 2002-03 AND THE CONTENTION OF THE ASSESSEE WAS DULY ACCEPTED. 4. IT IS IN THIS FACTUAL BACKGROUND THAT THE TRIBUNAL WHILE DECIDING THE APPEAL FOR THE ASSESSMENT YEAR 2003-04 HAS OBSERVED THAT THERE WAS NO CHANGE IN THE SET OF FACTS AND CIRCUMSTANCES AS THEY OBTAINED FOR THE ASSESSME NT YEARS 1997-98 AND 2002-03. THE TRIBUNAL WAS CORRECT IN HOLDING THAT THERE WAS DUE APPLICATION OF MIND BY THE ASSESSING OFFICER TO THE VERY SAME ISSUE DURING THE COURSE OF THE EARLIER TWO ASSESSMENT YEARS AND THAT THE ASSESSMENTS WERE FINA LIZED AFTER CONSIDERING THE REPLY FILED BY THE ASSESSEE SPECIFICALLY TO THE QUERY RAI SED BY THE ASSESSING OFFICER. IN THE CIRCUMSTANCES THE TRIBUNAL WAS IN OUR VIEW JUSTI FIED IN FOLLOWING THE DECISION OF THE SUPREME COURT IN RADHASOAMI SATSANG V. CIT [1992] 193 ITR 321/ 60 TAXMAN 248. WHILE THE PRINCIPLE OF RES JUDICATA COULD NOT AS AN ABSTRACT PRINCIPLE APPLY TO ASSESS MENT PROCEEDINGS SINCE EACH YEAR OF ASSESSMENT HAS TO BE CONSIDERED SEPARATELY YET WHEN A FUNDAMENTAL ASPECT WAS DULY CONSIDERED AFTER A QU ERY WAS RAISED BY THE ASSESSING OFFICER AND WAS ANSWERED BY THE ASSESSEE ON THE SAM E FACTS A CHANGE IN VIEW WAS EVIDENTLY NOT WARRANTED FOR THE ASSESSMENT YEAR IN QUESTION. SO CONSTRUED WE DO NOT 13 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 FIND THAT THE DECISION OF THE TRIBUNAL WILL GIVE RI SE TO ANY SUBSTANTIAL QUESTION OF LAW. THE VIEW WHICH WE HAVE TAKEN IS CONSISTENT WITH THE PRI NCIPLE LAID DOWN BY THE DIVISION BENCH OF THIS COURT IN KARSONDAS RANCHHODDAS V. CIT [1972] 83 ITR 256 . THE APPEAL IS HENCE DISMISSED. 5.4 KEEPING AFORESAID PRINCIPLES IN MIND WE ARE IN CLINED TO ACCEPT THE ARGUMENTS RAISED BY LD. AR IN THIS REGARD. THEREFO RE WE HOLD THAT INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE WOULD BE ALLOWA BLE AS REVENUE EXPENDITURE. SO FAR AS THE CAPITALIZATION OF LEGAL & PROFESSIONAL CHARGES IS CONCERNED IT HAS BEEN ALLEGED THAT THE ASSESSEE HA D NOT FURNISHED THE DETAILS OF THE SAME AND EXPLAINED THE NATURE OF EXP ENDITURE. THEREFORE THE MATTER TO THAT EXTENT STAND RESTORED BACK TO THE FILE OF LD. AO FOR ADJUDICATION DE-NOVO WITH A DIRECTION TO THE ASSES SEE TO PROVIDE COMPLETE DETAILS THEREFORE AND EXPLAIN THE CIRCUMSTANCES WHI CH ENTITLE THE ASSESSEE TO CLAIM THE SAID EXPENDITURE AS REVENUE EXPENDITUR E. IN THE RESULT THE GROUND (A) STAND ALLOWED. GROUND (D) STAND ALLOWED FOR STATISTICAL PURPOSES. GROUND (B) BEING ALTERNATIVE GROUND BECOMES INFRU CTUOUS. 6.1 REGARDING ISSUE OF LOFT REGULARIZATION CHARGES LD. AR HAS PLEADED THAT THE EXPENDITURE WAS MERELY REIMBURSABLE EXPEND ITURE IN NATURE SINCE THE SAME WAS INCURRED ON BEHALF OF THE BUYERS OF TH E GALAS. OUR ATTENTION IS DRAWN TO THE FACT THAT THE ASSESSEE IN FACT CREDI TED A SUM OF RS.37.67 LACS ON THIS ACCOUNT IN THE PROFIT & LOSS ACCOUNT AGAINST EXPENDITURE OF RS.35.17 LACS AND OFFERED DIFFERENTIAL AMOUNT I.E. RS.2.50 LACS TO TAX. IT HAS FURTHER BEEN AVERRED THAT THE NOTICES WERE ISSU ED BY THE MUNICIPAL AUTHORITIES AGAINST GALA OWNERS DIRECTLY WHO THEMSE LVES CARRIED OUT UNAUTHORIZED CONSTRUCTION IN THEIR RESPECTIVE GALAS AND THE ASSESSEE WAS 14 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 MERELY LIASIONING WITH THE AUTHORITIES ON BEHALF OD THE GALA OWNERS TO GET THE UNAUTHORIZED CONSTRUCTION REGULARIZED. OUR ATTE NTION HAS ALSO BEEN DRAWN TO THE FACT THAT THE ASSESSEE HAS NOT CARRIED OUT ANY UNAUTHORIZED CONSTRUCTION REQUIRING REGULARIZATION AND THEREFORE THE EXPENDITURE COULD NOT BE HELD TO BE PENAL IN NATURE. 6.2 WE FIND THAT FINANCIAL DOCUMENTS AS WELL AS SAM PLE SALE AGREEMENT & OTHER CORRESPONDENCES AS PLACED BEFORE US SUPPORT T HESE ARGUMENTS. THE PERUSAL OF PROFIT & LOSS ACCOUNT FOR THE YEAR AS P LACED ON RECORD ESTABLISHES THAT THE ASSESSEE HAS CREDITED LOFT REG ULARIZATION CHARGES OF RS.37 67 703/- AND DEBITED A SUM OF RS.35 17 297/- WHICH LEND CREDENCE TO THE ARGUMENT THAT EXPENDITURE WAS IN THE NATURE OF REIMBURSEMENT AND THE ASSESSEE IN FACT HAS OFFERED DIFFERENTIAL AMOUNT TO TAX. THIS IS FURTHER FORTIFIED UPON PERUSAL OF VARIOUS DOCUMENTS AS PLAC ED ON PAGE NOS. 75-90 OF THE PAPER-BOOK OF THIS YEAR. THESE DOCUMENTS ARE IN THE NATURE OF SAMPLE COPY OF NOTICES RECEIVED BY THE OWNER /OCCUP IER FROM MUNICIPAL AUTHORITIES AND THE REQUEST FROM OWNER /OCCUPIER TO THE ASSESSEE TO GET THE UNAUTHORIZED CONSTRUCTION REGULARIZED ON BEHALF OF THE BUYER AT THEIR COST AND RISK. THEREFORE ON THE GIVEN FACTS AND CIRCUMS TANCES THE AFORESAID ADDITION COULD NOT BE SUSTAINED. BY DELETING THE SA ME WE ALLOW GROUND NO. (C) OF THE APPEAL. 7. THE APPEAL MAY BE TREATED AS PARTLY ALLOWED IN T ERMS OF OUR ABOVE ORDER. 15 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 ASSESSMENT YEARS : 2012-13 & 2013-14 8.1 FACTS AS WELL AS ISSUES ARE IDENTICAL IN THESE YEARS. IN AY 2012-13 THE ONLY ISSUE INVOLVED IS CAPITALIZATION OF INTERE ST AND LEGAL /PROFESSIONAL FEES. THE ASSESSMENT HAS BEEN FRAMED U/S 143(3) ON 27/03/2015 WHEREIN AN AMOUNT OF RS.429.43 LACS AS CLAIMED BY THE ASSES SEE AS REVENUE EXPENDITURE HAS BEEN DISALLOWED TREATING THE SAME AS CAPITAL EXPENDITURE. THE LEARNED CIT(A) REJECTED ASSESSEES CLAIM ON SI MILAR REASONING AGAINST WHICH THE ASSESSEE IS UNDER APPEAL BEFORE US WITH I DENTICAL GROUNDS OF APPEAL. 8.2 FACTS BEING PARI-MATERIA THE SAME OUR OBSERVAT IONS FINDINGS AS WELL AS ADJUDICATION AS FOR AY 2011-12 SHALL MUTATIS-MUTANDIS APPLY TO THIS YEAR ALSO. ACCORDINGLY THE INTEREST EXPENDITURE WOULD B E ALLOWABLE AS REVENUE EXPENDITURE. THE ISSUE OF LEGAL / PROFESSIONAL FEES STANDS RESTORED BACK TO THE FILE OF LD. AO ON SIMILAR LINES WITH SIMILAR DI RECTIONS. IN THE RESULT THE APPEAL STANDS PARTLY ALLOWED. 9.1 IN AY 2013-14 ALSO THE ONLY ISSUE INVOLVED IS CAPITALIZATION OF INTEREST AND LEGAL / PROFESSIONAL FEES & BROKERAGE EXPENSES PAID ON LOAN. THE ASSESSMENT HAS BEEN FRAMED U/S 143(3) ON 18/02/2016 WHEREIN AN AMOUNT OF RS.526.06 LACS AS CLAIMED BY THE ASSESSEE AS REV ENUE EXPENDITURE HAS BEEN DISALLOWED TREATING THE SAME AS CAPITAL EXPEN DITURE. THE LEARNED CIT(A) REJECTED ASSESSEES CLAIM ON SIMILAR REASON ING AGAINST WHICH THE ASSESSEE IS UNDER APPEAL BEFORE US WITH IDENTICAL G ROUNDS OF APPEAL. 9.2 FACTS BEING PARI-MATERIA THE SAME OUR OBSERVAT IONS FINDINGS AS WELL AS ADJUDICATION AS FOR AY 2011-12 SHALL MUTATIS-MUTANDIS APPLY TO THIS YEAR 16 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 ALSO. ACCORDINGLY THE INTEREST EXPENDITURE AS WELL AS BROKERAGE PAID THEREUPON WOULD BE ALLOWABLE AS REVENUE EXPENDITURE . THE ISSUE OF LEGAL / PROFESSIONAL FEES STANDS RESTORED BACK TO THE FILE OF LD. AO ON SIMILAR LINES WITH SIMILAR DIRECTIONS. IN THE RESULT THE APPEAL STANDS PARTLY ALLOWED. ASSESSMENT YEAR: 2010-11 10.1 IN THIS YEAR THE ASSESSMENT HAS BEEN FRAMED U /S 143(3) ON 26/03/2013 AFTER CERTAIN ADDITIONS. THE LD. AO DID NOT DISTURB THE INTEREST EXPENDITURE OF RS.43.85 LACS AS CLAIMED BY THE ASSE SSEE AS PERIODIC COST BUT THE SAME WAS IN FACT DISALLOWED BY LD. CIT(A) DURING APPELLATE PROCEEDINGS ON MORE OR LESS SIMILAR REASONING AS GI VEN IN AY 2011-12. THEREFORE FACTS BEING PARI-MATERIA THE SAME OUR O BSERVATIONS FINDINGS AS WELL AS ADJUDICATION AS FOR AY 2011-12 SHALL MUTATIS-MUTANDIS APPLY TO THIS YEAR ALSO. ACCORDINGLY THE INTEREST EXPENDITURE WO ULD BE ALLOWABLE AS REVENUE EXPENDITURE. GROUND (C) STAND ALLOWED WHICH MAKES GROUND (D) INFRUCTUOUS. 10.2 IN THIS YEAR THE FOLLOWING QUANTUM ADDITIONS AS MADE BY LD. AO AND CONFIRMED BY LD. CIT(A) ARE ALSO THE SUBJECT MATTER OF APPEAL BEFORE US: - (I) UNEXPLAINED EXPENDITURE RS.31 915/- (II) INTEREST PAID TO RELATED PARTIES RS.22.42 LACS 10.3 BRIEF FACTS ARE THAT DURING ASSESSMENT PROCEED INGS IT TRANSPIRED THAT THE ASSESSEE MADE PURCHASES OF RS.31 915/- FROM A S USPICIOUS DEALER NAMELY M/S S.M. TRADING CO. THE LD.AO RELYING UPON INVESTIGATION CARRIED OUT BY SALES TAX DEPARTMENT MAHARASHTRA DISALLOWED THE SAME. THE SAME UPON CONFIRMATION BY FIRST APPELLATE AUTHORIT Y IS UNDER CHALLENGE 17 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 BEFORE US. UPON DUE CONSIDERATION WE FIND THAT LD. AO HAS PRIMARILY RELIED UPON THE INVESTIGATION BEING CARRIED OUT BY OTHER A UTHORITY WHILE MAKING THE DISALLOWANCE. HOWEVER NO FURTHER INVESTIGATION IS DONE BY LD. AO. KEEPING IN VIEW THE ASSESSEES NATURE OF BUSINESS WE RESTR ICT THE ADDITION TO 12.5% OF THESE PURCHASES. GROUND (A) STAND PARTLY ALLOWED . 10.4 UPON PERUSAL OF INTEREST PAYMENT CHART IT TRA NSPIRED THAT THE ASSESSEE PAID INTEREST IN THE RANGE OF 12% TO 15% TO UNRELAT ED PARTIES AS AGAINST INTEREST OF 18% PAID TO RELATED PARTIES. THE LD. AO PROCEEDED TO DISALLOW INTEREST IN EXCESS OF 15% AND ACCORDINGLY MADE ADD ITION OF RS.22.42 LACS IN THE HANDS OF THE ASSESSEE FOR EXCESS PAYMENT OF INTEREST. THE FIRST APPELLATE AUTHORITY CONFIRMED THE SAME ON THE LOG IC THAT LOANS OBTAINED FROM RELATED PARTIES WERE MORE SECURE AND THEREFORE LESS INTEREST WAS PAYABLE TO RELATED PARTIES. AGGRIEVED THE ASSESSEE IS UNDER APPEAL BEFORE US. 10.5 UPON PERUSAL OF FACTUAL MATRIX IT IS NOTED TH AT THE ASSESSEE HAS PAID BROKERAGE AT AVERAGE RATE OF 2.43% WHILE AVAILING L OANS FROM OUTSIDE PARTIES WHILE NO SUCH BROKERAGE IS STATED TO HAVE B EEN PAID AGAINST LOANS OBTAINED FROM RELATED PARTIES. KEEPING IN VIEW THE SAME THE DIFFERENCE IN INTEREST RATE WOULD ONLY BE MARGINAL. ANOTHER FACT IS THAT THERE IS NO IMMEDIATE BENEFIT TO THE ASSESSEE SINCE IT HAS INCU RRED LOSSES DURING THE YEAR AND ALSO ASSESSED AT LOSS FIGURES. THEREFORE IN TERMS OF CBDT CIRCULAR NO. 6P OF 1968 DATED 06/07/1968 AS WELL AS THE DECI SION OF HONBLE BOMBAY HIGH COURT RENDERED IN CIT V/S INDO SAUDI SERVICES (TRAVEL) P. LTD. (2009 310 ITR 306) NO DISALLOWANCE WOULD BE WARRANTED WHEN THERE 18 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 WAS NO ATTEMPT TO EVADE TAXES. KEEPING IN VIEW THE SAME WE DELETE THE IMPUGNED DISALLOWANCE OF RS.22.42 LACS AS MADE U/S 40A(2)(B). GROUND (B) STAND ALLOWED. 10.6 THE APPEAL STANDS PARTLY ALLOWED. ASSESSMENT YEARS: 2007-08 & 2008-09 11. IN AY 2007-08 THE ASSESSMENT HAS BEEN FRAMED U /S 143(3) R.W.S. 147 OF THE ACT ON 05/03/2015. THE ASSESSMENT FOR AY 200 8-09 WAS SIMILARLY FRAMED U/S 143(3) R.W.S. 147 OF THE ACT ON 18/02/20 16. BOTH THE YEARS WERE REOPENED ON THE BASIS OF ASSESSMENT PROCEEDINGS OF AY 2011-12 TO DISALLOW THE INTEREST EXPENDITURE OF RS.25.83 LACS & RS.54.29 LACS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. IN AY 2008- 09 THE ASSESSEE HAD PAID BROKERAGE ON LOANS FOR RS.2.68 LACS WHICH HAS ALSO BEEN DISALLOWED TREATING THE SAME AS CAPITAL EXPENDITURE. THE ASSES SEE CONTESTED THE LEGALITY OF ASSESSMENT PROCEEDINGS AND QUANTUM ADDI TIONS ON MERITS FOR BOTH THE YEARS WHICH WERE REJECTED BY FIRST APPELL ATE AUTHORITY. AGGRIEVED THE ASSESSEE IS UNDER APPEAL BEFORE US WHEREIN BESI DE CONTESTING THE ISSUE ON MERITS THE ASSESSEE IS CONTESTING LEGALITY OF R EASSESSMENT PROCEEDINGS. SO FAR AS THE ISSUE ON MERITS IS CONCERNED WE FIND THAT THE SAME HAS ALREADY BEEN ADJUDICATED BY US IN ASSESSEES FAVOR FOR AY 2011-12 WHICH FORM THE VERY BASIS OF REOPENING THE ASSESSMENT OF THESE TWO YEARS. THEREFORE FACTS BEING PARI-MATERIA THE SAME OUR O BSERVATIONS FINDINGS AS WELL AS ADJUDICATION AS FOR AY 2011-12 SHALL MUTATIS-MUTANDIS APPLY TO THESE TWO YEARS ALSO. ACCORDINGLY THE INTEREST EXP ENDITURE FOR BOTH THE 19 LAXMI INDUSTRIAL ESTATE ASSESSMENT YEARS: 2007-08 TO 2008-09 2010-11 TO 20 13-14 YEARS AND BROKERAGE EXPENSES FOR AY 2008-09 WOULD B E ALLOWABLE TO THE ASSESSEE AS REVENUE EXPENDITURE. THE GROUNDS IN BOT H THE YEARS TO THAT EXTENT STANDS PARTLY ALLOWED. THE SAID ADJUDICATIO N WOULD RENDER THE LEGAL GROUNDS MERELY ACADEMIC IN NATURE AND THEREFORE NO T DEALT WITH BY US. THE APPEAL FOR BOTH THE YEARS STANDS PARTLY ALLOWED. CONCLUSION 12. ALL THE APPEAL STANDS PARTLY ALLOWED TO THE EXT ENT INDICATED IN THE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST NOVEMBER 2019 SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 21/11/2019 SR.PS:-JAISY VARGHESE FG HG / COPY OF THE ORDER FORWARDED TO : 1. XZ / THE APPELLANT 2. [\XZ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. E F[ G G / DR ITAT MUMBAI 6. F IJK / GUARD FILE / BY ORDER / (DY./ASSTT.REGISTRAR) / ITAT MUMBAI