Commissioner of Income Tax vs Shriram Builcons Ltd.

Heard Mr. Anand Parchure, learned Counsel for the appellant, and Shri C.J. Thakar, learned Counsel for the respondent.

All these four appeals u/s 260A of the Income Tax Act, 1961, have been preferred by the Revenue against the common order dated August 24, 2005, passed by the Income Tax Appellate Tribunal, Nagpur Bench, Nagpur ("the ITAT" for short), disposing of Income Tax Appeal Nos. 200/Nag/2002, 107/Nag/2003, 108/Nag/2003 and 201/Nag/2002.

The respondent in the above appeals is the successor of M/s Shriram Builcons (hereinafter referred to as "the assessee") who was the civil contractor and builder. On August 4, 1996, the assessee entered into a development agreement with Bharat Kheta and others for development of business complex on their land situated on Kingsway Civil Lines, Nagpur. As per the said agreement, the assessee was given development rights to construct multistoreyed commercial complex at their cost as per the sanctioned plan. The consideration agreed to be paid by the assessee to Khetas was Rs. 3.81 crores for which post-dated cheques were given. There were 21 tenants in the said premises. It was the responsibility of the assessee to get them vacated at their cost. The project was to be completed within four years. Mr. Kheta and others agreed to transfer directly the proportionate share in land to respective purchasers of shop and offices, etc., as may be nominated by the assessee. With a view to complete the project in time the assessee negotiated with the tenants and got them vacated by paying compensation. During the assessment year 1997-98 the settlement was arrived at with some tenants for which compensation of Rs. 38 lakhs was paid while in the assessment year 1998-99 compensation of Rs. 79,84,987 was paid. The assessee claimed deduction of the said amount in its profit and loss account for the assessment years 1997-98 and 1998-99 respectively. The deduction so claimed was allowed by the Assessing Officer in scrutiny assessment u/s 143(3) for the said two years. Similar expenses paid in earlier years were also allowed by the Department. The amounts paid to the tenants were allowed in the respective years as revenue expenditure and such expenditure was never treated as one relating to stock-in-trade or work-in-progress.

It appears that there was some audit objection in respect of the above amounts. On account of the said objection notice u/s 154 was issued to revise intimation u/s 143(1)(a). The assessee objected to the said notice. Consequently, the Assessing Officer dropped the proceedings and completed the scrutiny assessment by order dated March 29, 2000, allowing the expenditure as claimed.

Thereafter, the Commissioner of Income Tax on the basis of the said objection issued notice u/s 263 for the assessment years 1997-98 and 1998-99 proposing to revise the orders passed u/s 143(3). The assessee objected and claimed that he did not derive any title in the property of Khetas at any point of time and hence the expenditure incurred on vacating the tenants could not be taken as expenditure for improving the title of the assessee. The assessee also claimed that the expenditure incurred did not create any stock-in-trade or work-in-progress belonging to the assessee. The assessee also contended that consistently and regularly it was following the same method for claiming expenses on vacation of tenants and the same was accepted by the Department in the past and as such the Department could not change the method of computation. The Commissioner of Income Tax held against the assessee and directed the Assessing Officer to revise the orders as per the directions given in his order passed u/s 263. These orders were challenged by the assessee by filing appeals before the Income Tax Appellate Tribunal.

The assessee filed appeals before the Commissioner of Income Tax (Appeals) challenging the additions on various grounds. After considering the various submissions, the Commissioner of Income Tax (Appeals) allowed the appeals of the assessee and deleted the expenditure incurred on the said vacation. Against the orders passed by the Commissioner of Income Tax (Appeals) for the assessment years 1997-98 and 1998-99 the Revenue filed two appeals before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal disposed of the appeals by common order which has been impugned by the Revenue by filing appeals. By the impugned order the Income Tax Appellate Tribunal has allowed the appeals filed by the assessee and dismissed the appeals filed by the Revenue. The Tribunal in the impugned order has held as follows:

(I) The assessee was regularly following the mercantile method of accounting and was maintaining consolidated account and not project-wise account;

(II) The Revenue itself has accepted the position that the accounts were not maintained project-wise even for the accounting year 1994-95; and

(III) The expenditure of vacating the tenants as and when incurred was claimed as revenue expenditure and accepted by the Department during the earlier assessment years.

(IV) The Commissioner of Income Tax has not pointed out as to what was wrong in the method of accounting followed by the assessee. It would not be equitable to permit the Revenue to take different stand than what was taken by it in the earlier years. The view taken by the Commissioner of Income Tax that the expenditure in question has to be added to the cost of project and the same has to be set off in the income of the project in the year of sale was neither tenable nor practicable.

(V) The expenditure incurred in getting the tenants vacated did not in any way improve the title of the assessee because the assessee has no title of any nature over the property of Kheta. There was neither any improvement of title of the assessee nor any stock-in-trade or work-in-progress belonging to the assessee. The Commissioner of Income Tax had wrongly invoked the jurisdiction u/s 263 of the Act.

Having heard learned Counsel for the parties and having considered the rival submissions we are of the considered opinion that no case has been made out by the Revenue for interference by this court. The findings recorded by the Income Tax Appellate Tribunal which have been mentioned above for holding that the Commissioner of Income Tax had wrongly invoked the jurisdiction u/s 263 of the Act cannot be said to be perverse. In our opinion, the view taken by the Income Tax Appellate Tribunal for setting aside the orders passed by the Commissioner of Income Tax u/s 263 of the Act cannot be faulted.

In our opinion, no substantial question of law is involved in the above appeals. Hence, the appeals are rejected.