Shailesh Dhairyawan, Mumbai vs Assessee

सर्वश्री आय.सी.शभमव, रेखम सदस्म एवुं श्री संजम गगव, न्ममयमक सदस्म BEFORE SHRI R.C.SHARMA, AM & SHRI SANJAY GARG, JM आमकय अऩीर सं./ITA No.7615/Mum/2014 ( नििाारण वषा / Assessment Year :2010-2011) Shailesh Dhairyawan, G-01, Vs. ITO 19(1)(2), Mumbai Dhairya Residency, 12th Road, Opp. Gayatri Mandir, Khar West-400052 स्थममी रेखम सं ./ जीआइआय सं ./ PAN/GIR No. : AAAPD 5713 D (अऩीरमथी /Appellant) .. (प्रत्मथी / Respondent)

यनधमवरयती की ओर से /Assessee by : Shri Mahendra B.Sanghavi & . Shri Darshan Shah यमजस्र् की ओर से /Revenue by : Shri Neil Philip

सन ु र्मई की तमयीख / Date of Hearing : 19/03/2015 घोषणम की तमयीख/Date of Pronouncement 08/04/2015

आदे श / O R D E R

PER R.C.SHARMA (A.M):

This is an appeal filed by the assessee against the order of CIT(A)

dated 3-11-2014, for the A.Y.2010-2011, in the matter of order passed

u/s.143(3) the I.T.Act.

2. Rival contentions have been heard and record perused. Facts in

brief are that the assessee is engaged in the business of construction and

building. During the course of scrutiny assessment, the AO disallowed the

claim of Rs.28 lakhs made towards provision for expenses under

construction contracts. We found that the provision of expenses relates to

Jai Milind Construction Project, which was almost completed during the 2 ITA No.7615/14

year under consideration. The assessee has sold all the flats pertaining to

that project and also recognized entire sale consideration in the profit and

loss account of the year under consideration. Since all the income

pertaining to this project have already been accounted for in the year

under consideration, the various expenses which pertain to this project is

required to be taken into account which may be required for completing

the obligation pertaining to this project such as interior of flat, bathroom

fitting, BMS charges for filing computation etc. Accordingly, the assessee

has provided for these expenses against income of this project which was

accounted during the year under consideration. Insofar as entire income

of this project was already taken into account during the year under

consideration only, the expenses pertaining to this project is eligible for

deduction. We also found from the record that in the subsequent

assessment year 2011-2012, the assessee has incurred those various

expenses totaling to Rs.29,24,735/-, full break up of the same was also

furnished before the AO to substantiate the claim of provision for

expenses made during the year. Accordingly, we do not find any merit in

the action of the lower authorities disallowing expenses pertaining to this

project, income of which has already been offered for taxation during this

year. We, therefore, direct the AO to delete the disallowance of expenses

so made.

3. The next grievance relates to disallowance of expenses amounting

to Rs.16,19,293/- in respect of purchase of construction material from

Bhavisha Steel Art. We found that this railing material was purchased for 3 ITA No.7615/14

the very same Jai Milind project. The AO disallowed it on the plea that

summon issued to the supplier returned back, therefore, expenses

remained unverifiable. From the record we found that before the lower

authorities the assessee submitted various evidences pertaining to these

purchases i.e. invoice from the Bhavisha Steel Art, ledger account

statement and confirmation from Bhavisha Steel Art etc. From these

evidences, it is clear that expenses have been actually incurred by the

assessee towards construction of Jai Milind Project. It is pertinent to

mention that summon issued by AO returned unserved because the

concerned person was out of station. However, after the summon issued

by the AO was returned unserved, the AO did not provide any opportunity

to assessee to produce the party or to give changed address, if any.

Thus, fact of summon returned unserved was not brought to the notice of

assessee. However, during the appellate proceedings, the assessee had

requested the CIT(A) to grant the assessee an opportunity to produce the

party, however, no such opportunity was provided to the assessee. We

had verified the relevant evidences placed on record like purchases

invoices, ledger account, balance confirmation, copy of the PAN Card,

which proves that assessee has actually made purchase of Rs.16.90

lakhs towards material required for Jai Milind Project on account of railing

expenses, incurred and paid to Bhavisha Steel Art. Expenses have been

incurred wholly and exclusively for the purpose of Jai Milind Project

corresponding income of which had already been offered for tax during 4 ITA No.7615/14

the year. We, therefore, direct the AO to delete the disallowance of

expenses.

4. The AO has also made disallowance of bad debts of Rs.15,76,000/-

debited the profit and loss account as under :-

Mr. V.D.Khatara Rs.16,60,000/-(15,76,000+84,000) Mr. Arun Mohe Rs.18,60,000/-

Sundry Parties Rs.304,288/- Total Rs. Rs.38,24,288/-

5. From the record we found that Mr. V.D.Khatara was an existing

tenant in Rajhans project, an additional area was sold for Rs.18,60,000/-

along with flat in exchange of old tenanted property as per agreement

dated 29/12/2006. The said amount was realized/adjusted as under :-

Sale Rs.18,60,000/- consideration Amount Rs.100,000 Received in F.Y.2006-07 Amount Rs.100,000 Received in F.Y.2007-08 Opening Balance Rs.16,60,000 as on 01/04/2009 Less : Corpus Fund Rs.10,00,000 debited to Bad debts Account Additional Rs.576,000 15,76,000 compensation debited to Bad debts Account

Balance Receivable is also debited to bad Rs.84,000 debts account

Out of above payment, the CIT(A) has only allowed Rs.84,000/- on the

ground that since it is a case of set off of amount receivable against

amount payable by the assessee to Shri Khatara on account of the corpus

fund and additional compensation. From the record we found that the said 5 ITA No.7615/14

amount of Rs.15,76,000/- which was adjusted against the corpus fund

payable and against compensation payable could have been debited to

the profit and loss account as an expense had the adjustment of amount

payable towards corpus fund and towards compensation not been made.

However, the assessee has debited bad debts account by Rs.15,76,000/-

instead of Rs.10,00,000/- as corpus fund expense and Rs.576,000/- as

compensation payable. Thus, there is no impact on revenue since said

sum of Rs.15,76,000/- remains debited to the profit and loss account

irrespective of the fact whether under the head Bad debts or under any

other head of expense. Thus, the said amount is allowable as business

loss. Accordingly, we direct the AO to delete the disallowance of

Rs.15,76,000/-.

6. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on this 08/04/2015.

Sd/- Sd/- (संजम गगव) (आय.सी.शभमव) (SANJAY GARG) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भंफ ु ई Mumbai; ददनमंक Dated 08/04/2015 प्र.कु.मभ/pkm, यन.स/ PS

आदे श की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to :

1. अऩीरमथी / The Appellant

2. प्रत्मथी / The Respondent.

3. आमकय आमक् ु त(अऩीर) / The CIT(A), Mumbai.

4. आमकय आमुक्त / CIT आदे शािसार/ BY ORDER,

5. वर्बमगीम प्रयतयनधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai

6. गमर्व पमईर / Guard file.

उप/सहायक पुंजीकार सत्ममवऩत प्रयत //True Copy// (Asstt. Registrar) आयकर अपीऱीय अधिकरण, भुंफई / ITAT, Mumbai