Green Twig Estate Management Pvt. Ltd. Vs ITO (ITAT Mumbai)
ITAT Mumbai held that onus is on the assessee to establish that the specified expenditure incurred was wholly and exclusively for the purpose of the business, disallowance of expenditure justified in absence of such establishment.
Facts-
AO disallowed the work-in-progress in respect of ‘Kirti Chambers Property’ amounting to Rs. 2,99,40,000/- and denied carry forward of the same for subsequent years. CIT(A) upheld the disallowance. Being aggrieved, the present appeal is preferred.
The lower authorities has mainly rejected the genuineness of the expenditure incurred against payment to tenanted authorized/unauthorized dwellers ( i.e. which has been acclaimed as work-in-progress) mainly on the ground that in the registered deed of transfer, purchase value was recorded at nil as compared to the value recorded in unregistered agreements and declaration of seller parties.
Conclusion-
The assessee attempted to substantiate with the help of non-registered agreement and declaration of the seller parties. But in the facts of the case, the assessee was required to produce those parties before the Assessing Officer for confirmation of the facts stated in their affidavits and to show deposit of said payment in the bank accounts. The seller parties were also required to show from Income-tax Returns filed that payments have been shown as income from sale/transfer/vocation of tenanted premises. Assessee failed to produce such confirmation.
Held that the onus was on the assessee to establish that expenditure was incurred wholly and exclusively for the purpose of the business of the assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These two appeals by the assessee are directed against two separate orders, both dated 23/03/2017, passed by the Ld. Commissioner of Income -tax(Appeals)-3, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2011 -12 and 2012-13 respectively. As common issue in dispute is involved in both these appeals, therefore, same were heard together and disposed off by way of this consolidated order for convenience and avoid repetition of facts.
2. First we take up, the appeal for assessment year 2011 -12. The grounds raised by the assessee are reproduced as under:
1. That the Id. C.I.T. (Appeals) has erred in confirming the disallowance (reduction) made & denial of carry forwarding claim of Closing Work in Progress (WIP) of Rs. 2,99,40,000/- by the Id. A.O. without properly appreciating the facts of the case & law. The Appellant prays that disallowance of closing WIP & denial of carry forward claim of the same being wrong on facts & bad in law therefore same may kindly be deleted.
3. Briefly stated facts of the case are that the assessee company was incorporated on 03/02/2011 with two shareholders i.e . Sh Ashwin L. Shah and Smt Kalpana Shah, with the main purpose of redevelopment of a Property namely “Kirti Chambers”, located at Fort, Mumbai. The assessee failed to file his regular return of income for the assessment year under consideration i.e. AY 2011 -12, therefore the Assessing Officer issued a notice under section 148 of the Income-tax Act, 1961 ( in short ‘the Act’) on 29/10/2013, which was duly served upon the assessee. In response, the assessee filed return of income on 18/02/2014 declaring Nil income. Subsequently, statutory notices under the Act were issued and complied with. In the assessment completed on 31/03/2015 under section 147 read with section 143(3) of Act, the Assessing Officer though assessed the total income at NIL, however disallowed work-in-progress in respect of “Kirti Chambers Property” amounting to ₹2,99,40,000/- and denied carry forward of the same for subsequent years. On further appeal, the Ld. CIT(A) also upheld the disallowance. Aggrieved, the assessee is in appeal before the Tribunal, raising the grounds as reproduced above.
3.1 The sole ground raised by the assessee relates to disallowance of work in progress in respect of Kirti Chambers.
3.2 The facts qua the issue in dispute raised in ground are that the property “Kirti Chambers ” was originally standing in the name of M/s Sahib Enterprises, from it was purchased by Sh Ashwan L Shah and Smt. Kalpana Shah ( i.e. promoters of the assessee company) through a registered deed of conveyance dated 04.12. 2006, which was held by them as an individual investment and after having the decision to exploit the property commercially, it was transferred to the assessee company by way of a registered deed of conveyance dated 21/06/2011. The property acquired by the company was fully tenanted by recorded as well as unrecorded occupiers (unauthorized persons to whom the tenements occupied by the recorded tenants were illegally sublet). Even pending to the formation of the assessee company and ultimate transfer of the building in reference, the abovenamed promoters holding the title, had filed the suit against the unlawful occupiers of the tenants in the Court of small causes at Mumbai for their eviction and negotiated with some of the recorded and unrecorded tenants for surrender of their tenancy/occupation claim by payments of suitable consideration till 31/03/2011. The original promoters inducted M/s Vedang Builders LLP and others to provide finance and expertise towards development of the property under redevelopment scheme.
4. The Assessing Officer observed work-in -progress of ₹3,05,33,250/- in the balance sheet u nder the head “inventories”. It was claimed by the assessee that said entry was in respect of the stamp duty paid and registration cost in respect of the purchase including cost paid towards acquisition of tenanted premises. The breakup of said work in progress submitted by the assessee has been reproduced by the Ld. CIT(A) in para 7.3 of the impugned order as under:
