ACIT, Circle-40, Kolkata, Kolkata v. Shri Mukul Chatterjee, Kolkata

ITA 1008/KOL/2010 | 2005-2006
Pronouncement Date: 22-07-2011

Appeal Details

RSA Number 100823514 RSA 2010
Assessee PAN ACIPC6094N
Bench Kolkata
Appeal Number ITA 1008/KOL/2010
Duration Of Justice 1 year(s) 2 month(s) 8 day(s)
Appellant ACIT, Circle-40, Kolkata, Kolkata
Respondent Shri Mukul Chatterjee, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2011
Appeal Filed By Department
Bench Allotted A
Tribunal Order Date 22-07-2011
Date Of Final Hearing 06-04-2011
Next Hearing Date 06-04-2011
Assessment Year 2005-2006
Appeal Filed On 14-05-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [ . . . . . . . . . . . . . .. . ! ! ! ! ' ' ' ' ] [BEFORE HONBLE SHRI B. R. MITTAL JM & HONBLE SHRI S.V. MEHROTRA AM] #$ #$ #$ #$ / I.T.A NO. 1008/KOL/2010 %& '() %& '() %& '() %& '()/ // / ASSESSMENT YEAR : 2005-06 ASSTT. COMMISSIONER OF INCOME TAX -VS .- MUKUL CHATTERJEE CIRCLE-40 KOLKATA. KOLKATA [PAN : ACIPC 60 94 N] ( - /APPELLANT ) (/0 -/ RESPONDENT ) 1 2 1 2 1 2 1 2 /C.O.NO.125/KOL/2010 #$ #$ #$ #$ / A/O ITA NO .1008 /KOL/2010 %& '() %& '() %& '() %& '()/ // / ASSESSMENT YEAR : 2005-06 MUKUL CHATTERJEE -VS.- ASSTT. COMMISSIONER OF INC OME TAX KOLKATA [PAN : ACIPC 6094 N] CIRCLE-40 KOLKATA. [ - /APPELLANT] [ /0 -/ RESPONDENT] - / FOR THE DEPARTMENT : 3 /SMT. JYOTI KUMARI /0 - / FOR THE ASSESSEE : 3 /SHRI S. M. SURANA 4 /O R D E R [ . . . . . .. . ! ! ! ! ' ' ' ' ] PER S.V. MEHROTRA AM THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2005-06 AGAINST THE ORDER OF THE LD. CIT(A)-XXIV KOLKATA DATED 01.02.2010 AND THE A SSESSEE HAS FILED THE CROSS OBJECTION. 2. THE ASSESSEE AN INDIVIDUAL IN THE RELEVANT ASS ESSMENT YEAR WAS ENGAGED IN THE BUSINESS OF INTERIOR DECORATOR. HE HAD FILED HIS RETURN OF INCO ME DECLARING TOTAL INCOME OF RS.8 38 400/-. THE ASSESSMENT WAS COMPLETED AT A TOTAL INCOME OF RS.17 06 450/- INTER ALIA MAKING FOLLOWING DISALLOWANCES :- I) LEVY FOR PENALTY : RS.2 59 293/- II) UNDERSTATED VALUE OF WORK IN PROGRESS : RS.6 02 940/- III) DISALLOWANCE U/S. 14A. : RS. 5 816/- ITA NO. 1008 & C.O. NO.125/KOL/2010 2 THE LD. CIT(A) PARTLY ALLOWED THE ASSESSEES APPEAL . 3. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A) DE PARTMENT IS IN APPEAL BEFORE US AND ASSESSEE HAS FILED CROSS OBJECTION. 4. FIRST WE TAKE UP THE DEPARTMENTAL APPEAL. 5. GROUND NO.1 READS AS UNDER :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED BY DELETING THE ADDITION MADE ON ACCOUNT OF LEVY FOR P ENALTY AMOUNTING TO RS.2 59 293/- WITHOUT CONSIDERING ASSESSEES BUSINE SS CONDUCT AS BREACH OF LAW WHICH RENDERED HIM LIABLE TO PENALTY OR FINE WHICH CAN NOT BE CLAIMED AS A DEDUCTIBLE EXPENSE. 6. BRIEF FACTS APROPOS THIS ISSUE ARE THAT ASSESSEE HAD DEBITED RS.2 59 293/- UNDER THE HEAD LEVY OF PENALTY. IT WAS EXPLAINED THAT ASSESSEE HAD RECEIVED LESS PAYMENT OF RS.2 59 293/- FROM HIS CLIENT VSNL WHICH WAS SHOWN IN BOOKS OF ACCOUNT AS LEVY OF PENALTY. THE ASSESSING OFFICER NOTED FROM AN ORDER OF AWARD OF ARBITRATION BETWEEN ASSESSEE AND VSNL THAT VSNL WAS DIRECTED TO PAY A SUM OF RS.35 56 000/- TO THE ASSESSEE AS A GAINST ASSESSEES CLAIM OF RS.38 15 293/- TOWARDS FULL AND FINAL SETTLEMENT OF ALL THE CLAIMS AND COUNTER-CLAIMS OF ITS CONTRACT. THE ASSESSING OFFICER CONCLUDED THAT RS.2 59 293/- WAS DEDUCTED U NDER LATE DELIVERY CLAUSE BY VSNL FROM THE ASSESSEE FOR BREACH OF CONTRACT. THUS HE HELD THAT THIS WAS PENALTY OR FINE LEVIED ON ASSESSEE DURING CONDUCT OF BUSINESS AND THEREFORE DISALLOWED RS.2 59 293/-. THE LD. CIT(A) DELETED THE DISALLOWANCE TAKING NOTE OF THE FACT THAT ASSESSEE HAD SUBMITTED BILLS OF RS.38 15 293/- OUT OF WHICH RS.2 59 293/- WAS DEDUCTED ON ACCOUNT OF LATE DELIVERY CLAUSE. 7. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT DEDUCTION HAS BEEN MADE ON ACCOUNT OF BREACH OF CONTRACT AND THEREFORE IT WAS NOT AN ALLOWABLE DEDUCTION. HE RELIED ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF TAM TAM PEDDA GURUVA REDDY VS. JCIT [2007] 291 ITR 44 (KARN). 8. LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE HAS RELIED ON THE DECISION OF HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. GRAND CASH EW CORPORATION [1990] 182 ITR 216 (KER.) AND IN THE CASE OF HIND MERCANTILE CORPORATION LTD . VS. CIT 49 ITR 23 (MAD.). ITA NO. 1008 & C.O. NO.125/KOL/2010 3 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORDS OF THE APPEAL. THE FACTS ARE NOT DISPUTED. IT IS A CAS E OF SIMPLE SETTLEMENT OF DISPUTE BETWEEN THE PARTIES THROUGH ARBITRATOR IN REGARD TO TERMS OF CO NTRACT. THE DEDUCTION MADE BY VSNL AS PER ARBITRATION AWARD FROM THE BILLS WAS ON ACCOUNT OF LATE DELIVERY CLAUSE AND NOT ON ACCOUNT OF ANY VIOLATION OF STATUTORY PROVISION. DECISION IN THE C ASE OF TAM TAM PEDDA GURUVA REDDY (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE CASE BECAUSE IN THE SAID DECISION PENALTY HAD BEEN DEBITED FOR EXAGGERATED MEASUREMENT WHICH WAS NOT FOR MERE BREA CH OF CONTRACTUAL OBLIGATION. THE DECISION IN THE CASE OF GRAND CASHEW CORPORATION (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE BECAUSE IN THIS CASE ALSO IT WAS HELD THAT LIABILIT Y TO PAY DAMAGES ON ACCOUNT OF BREACH OF CONTRACT IS AN ALLOWABLE DEDUCTION. THEREFORE LD. CIT(A) RI GHTLY ALLOWED THE ASSESSEES CLAIM. WE THEREFORE CONFIRM THE ORDER OF LD. CIT(A) ON THIS ISSUE. 10. GROUND NO.2 READS AS UNDER :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED BY DELETING THE ADDITION MADE ON ACCOUNT OF UNDISCLOSE D VALUE OF W.I.P. AMOUNTING TO RS.6 02 940/- WITHOUT CONSIDERING THE PURCHASES MAD E AFTER SUBMITTING FINAL BILL OR RUNNING BILL WHICH SHOULD BE DECLARED AS WORK-IN-PR OGRESS. 11. BRIEF FACTS APROPOS GROUND NO.2 ARE THAT DURING THE YEAR ASSESSEE HAD EXECUTED VARIOUS PROJECTS FOR VARIOUS ORGANIZATIONS VIZ. SBI OBEROI AIRPORT SERVICE CALCUTTA SWIMMING CLUB BENGAL CLUB LTD. HDFC UCO BANK SPACE INTERNATION AL (P) LTD. THE TRIDENT HILTON AND BENGAL INTELLIGENT PARKS (P) LTD. THE ASSESSING OFFICER NO TICED THAT ASSESSEE HAD SHOWN TOTAL CONTRACT RECEIPTS OF RS.1 38 42 249/- AND SALES OF RS.4 12 4 88/- HOWEVER NO CLOSING STOCK HAD BEEN REFLECTED BUT WORK-IN-PROGRESS HAD BEEN DISCLOSED A T RS.5 66 360/-. IT WAS SUBMITTED THAT PURCHASES MADE IN CONNECTION WITH EXECUTING OF WORK S FOR SREE KHAMAKHYA TEA CO. (P) LTD. BENGAL CLUB LTD. AND TATA IRON & STEEL CO. LTD. HAD BEEN SHOWN AS WORK-IN-PROGRESS AS ON 31.03.2005. IT WAS POINTED OUT THAT THE METHOD OF V ALUATION OF WORK-IN-PROGRESS ADOPTED WAS BY TAKING INTO CONSIDERATION THE TOTAL EXPENSES INCURR ED BY THE ASSESSEE TO EXECUTE THE PROJECT UNTIL ANY RUNNING ACCOUNT BILL IS RAISED OR FINAL BILL IS RAISED. THE ASSESSING OFFICER EXAMINED VARIOUS RUNNING ACCOUNT BILLS/FINAL BILLS RAISED BY THE ASS ESSEE AND ON EXAMINATION OF CREDIT PURCHASE/CASH PURCHASE ACCOUNT NOTICED THAT SUBSTAN TIAL PURCHASES HAD BEEN MADE EVEN AFTER SUBMISSION OF RUNNING/FINAL BILLS. AFTER CONSIDERIN G THE SUBMISSIONS OF THE ASSESSEE THAT SOME ITA NO. 1008 & C.O. NO.125/KOL/2010 4 PURCHASES WERE MADE FOR REPAIRING/RENOVATING THE PR OJECTS COMPLETED AGAINST WHICH RUNNING/FINAL BILLS WERE RAISED THE ASSESSING OFFICER WORKED OUT THE WORK-IN-PROGRESS AT RS.11 69 300/- AND MADE THE ADDITION FOR RS.6 02 940/-. IN SUM AND SUB STANCE HE MADE ADDITION ON THE BASIS OF TOTAL PURCHASES MADE AGAINST VARIOUS PROJECTS FOR WHICH F INAL BILLS/R.A. BILLS HAD BEEN SUBMITTED. THE LD. CIT(A) DELETED THE ADDITION BY OBSERVING AS UND ER :- 4.4 FROM THE ASSESSMENT RECORD IT WAS SEEN THAT THIS EXPLANATION WAS NOT SUBMITTED BY THE APPELLANT BEFORE THE AO ACCORDINGL Y THE SUBMISSIONS OF THE APPELLANT ALONG WITH THE ENCLOSURES WERE FORWARDED TO THE AO AND THE AO WAS DIRECTED TO SUBMIT A REPORT VIDE THIS OFFICE LETTER NO.CIT(A)-XXIV/KOL/REMAD/09- 10/224 DATED 09.07.09. IN RESPONSE TO THE ABOVE THE AO SUBMITTED A REPORT VIDE HIS LETTER NO.ACIT/CIR-40/REMAND REPORT/09-10/115 DATED 13.10.2009 IN WHICH THE AO SUBMITTED AS UNDER :- AFTER RANDOM VERIFICATION THE STATEMENT OF WIP FOR THE YEAR 2004-05 AS SUBMITTED BY THE ASSESSEE SHOWS THAT THE MATERIAL PURCHASED B Y THE ASSESSEE WAS DELIVERED BEFORE THE FINAL BILLS WERE RAISED I.E. LAST DATE OF BILL RAISED ENTRY DATE PARTICULARS REF. NO. BILL DAT E CHALLAN DATE AMOUNT 14.01.2005 S.S. SALES 83 7.01.2005 7.12.200 4 RS.10610.00 15.01.2005 KAMAL PAINTS 7275 NIL 1 4.12.2004 RS. 1186.00 STORES 18.01.2005 VOUCHER SLIP NIL 17.12.2004 RS. 4658.00 02.02.2005 BANIK & CO. 114 28.01.2005 28.12.2004 RS. 3671.00 12.02.2005 GOPINATH 1160 11.02.200 5 11.12.2004 RS. 1790.00 KUMAR 26.02.2005 KAMAL PAINTS 6319 NI L 25.12.2004 RS. 420.00 STORES 05.03.2005 GOPINATH 1210 NIL 3.3.2005 RS. 1986.00 KUMAR 05.03.2005 MAITY HARDWARE STORES 4783 01.03.2005 19 23&25.12.2004 RS. 613.35 07.03.2005 BALAJI STORES 514 25.02.2005 25.02.2005 RS. 1586.00 31.03.2005 ASHUTOSH ROY & SONS 1440 18.3.2005 05.03.2005 RS. 162.00 WHEN THE ASSESSEE WAS ASKED TO SUBMIT THE PROJECT -WISE CHART OF RAW MATERIAL CONSUMED THE A/R REPLIED THAT IT IS NEITH ER PRACTICAL NOR POSSIBLE TO PRODUCE PROJECT-WISE CHART OF RAW MATERIAL CONSUMED AND THE PURCHASE IS A FACT AND SUBSTANTIVE MATERIAL WAS CONSUMED FOR REPA IRING OF COMPLETED PROJECT AS ALTERATION/MODFICATION/ REPAIRING IS A G ENERAL PHENOMENON IN SUCH PROJECTS. THE SAME SUBMISSION WAS SUBMITTED BY THE A/R BEFORE THE THEN ITA NO. 1008 & C.O. NO.125/KOL/2010 5 ASSESSING OFFICER WHICH IS REPRODUCED BELOW :- IT WAS SUBMITTED THAT SOME PURCHASES WERE MADE FOR REPAIRING OR RENOVATING THE PROJECTS COMPLETED AGAINST WHICH FIN AL/RUNNING BILLS WERE RAISED. THE ASSESSEES EXPLANATION IS NOT TENABLE. THE PURCHASES MADE AFTER SUBMITTING FINAL BILL CAN NOT BE CONSIDERED FOR UTI LIZATION OF REPAIRING WORKS. HOWEVER; IN ORDER TO PROVIDE NATURAL JUSTICE AND CO NSIDERING THE SUBMISSION OF THE ASSESSEE AND THE PETTY AMOUNT OF PURCHASES 20% OF ABOVE AMOUNT OF PURCHASE (20% OF RS.14 61 625/-) I.E. RS.2 92 325/- IS ALLOWED FOR UTILIZATION FOR THE PURPOSE OF REPAIRING ETC. AS AGAINST COMPL ETED PROJECTS. IT IS WORTH MENTIONING HERE THAT THE CHART AS PRODU CED BY THE ASSESSEE COULD NOT BE VERIFIED SINCE THE BOOKS OF ACCOUNTS A RE NOT AVAILABLE WITH THIS OFFICE 12. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND HAVE PERUSED THE RECORDS OF THE APPEAL. ASSESSEES CONTENTION BEFORE THE LD. CI T(A) THAT PURCHASES WERE BOOKED IN THE BOOKS OF ACCOUNT AT A MUCH LATER DATE ALTHOUGH THE MATERI AL RECEIVED EARLIER HAS BEEN ACCEPTED BY ASSESSING OFFICER IN THE REMAND REPORT. THE LD. CIT (A) HAS RIGHTLY OBSERVED THAT THIS IS ALSO A PREVALENT MARKET PRACTICE THAT THE MATERIAL IS DELI VERED AS PER REQUIREMENT OF THE PROJECT AND BILLING IS DONE SUBSEQUENTLY AFTER MUTUALLY AGREED PERIOD OR DEPENDING ON THE EQUATION BETWEEN THE PURCHASER AND THE SUPPLIER. THE MATERIAL HAD BE EN INCLUDED IN THE R.A. BILLS RAISED BY THE ASSESSEE BUT THE PURCHASE BILLS HAD BEEN RECEIVED L ATER ON. THE ASSESSING OFFICER IN THE REMAND PROCEEDINGS CONFIRMED THAT THE MATERIAL PURCHASED B Y THE ASSESSEE WAS DELIVERED BEFORE FINAL BILL WAS RECEIVED. LD. CIT(A) HAS CONFIRMED THE FINDINGS OF ASSESSING OFFICER TO THE EXTENT OF PURCHASES MADE AFTER RAISING OF RUNNING/FINAL BILLS REJECTING THE ASSESSEES PLEA THAT THE SAME WAS FOR REPAIR ETC. UNDER SUCH CIRCUMSTANCES THE LD. C IT(A) RIGHTLY PARTLY DELETED THE ADDITION. WE CONFIRM THE ORDER OF LD. CIT(A). CROSS OBJECTION FILED BY THE ASSESSEE [NO.125/KOL/2 010] 13. THE ASSESSEE HAS FILED THIS CROSS OBJECTION WHI CH AS PER OFFICE NOTE IS LATE BY 72 DAYS. THE ASSESSEE HAS FILED A CONDONATION PETITION WHICH REA DS AS UNDER :- I AM FILING HEREWITH A CROSS OBJECTION IN ABOVE A PPEAL. THERE IS A DELAY OF 45 DAYS. IN FACT I WAS ADVISED THAT THE ISSUE IS SETTL ED BY THE DECISION OF THE SPECIAL BENCH AND THE APPEALS ON THE ISSUE ARE PENDING DECI SION BY THE HONBLE BOMBAY HIGH COURT. NOW THAT THE HONBLE BOMBAY HIGH COURT HAS DECIDED THE ISSUE. I AM NOW FILING THE CROSS OBJECTION IN THE ABOVE APPEAL. ITA NO. 1008 & C.O. NO.125/KOL/2010 6 IN VIEW OF THE ABOVE IT IS REQUESTED TO KINDLY CON DONE THE DELAY IN FILING THE CROSS OBJECTION FOR THIS ACT OF KINDNESS I SHALL EVER PRAY. THOUGH IN THE PETITION IT IS STATED THAT THE DELAY IS OF 45 DAYS ONLY BUT CONSIDERING THE REASONS FOR DELAY WE ARE OF THE OPINION THAT ASSESSEE WAS PREV ENTED BY REASONALE CAUSE FROM FILING THE CROSS OBJECTION WITHIN TIME. WE THEREFORE CONDONE THE D ELAY. 14. BRIEF FACTS APROPOS THIS ISSUE ARE THAT DURING THE YEAR ASSESSEE HAD EARNED DIVIDEND OF RS.1 93 869/- AND CLAIMED EXEMPTION U/S. 10(34) & 1 0(35) WITHOUT ATTRIBUTING ANY EXPENSES FOR EARNING THE SAME. THE ASSESSING OFFICER ESTIMATED 3 % OF RS.1 93 869/- EXPENSES FOR EARNING THE DIVIDEND AND DISALLOWED THE SAME U/S. 14A. THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO RECOMPUTE THE AMOUNT OF DISALLOWANCE AS PER PROVISI ONS OF RULE 8D OF THE INCOME TAX RULES. 15. HAVING HEARD BOTH THE PARTIES WE FIND THAT HON BLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [2010] 328 IT R 81 (BOM.) HAS HELD THAT RULE 8D IS PROSPECTIVE AND IS APPLICABLE FROM ASSESSMENT YEAR 2008-09 ONLY. THIS BEING ASSESSMENT YEAR 2005-06 RULE 8D WAS NOT APPLICABLE. WE THEREFORE RESTORE THE MATTER TO THE FILE OF LD. CIT(A) TO DECIDE THIS GROUND ON MERIT. 16. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED AND CROSS OBJECTION OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 4 4 4 4 5 55 5 6% 6% 6% 6% 7 7 7 7 8 8 8 8 9' 9' 9' 9' ORDER PRONOUNCED IN TH E COURT ON 22.07.2011. SD/- SD/- [ . . ] [ . . . . . .. . ! ! ! ! ' ' ' ' ] [ B. R. MITTAL ] [ S.V. MEHROTRA ] JUDICIAL MEMBER ACCOUNTANT MEMBER 9' 9' 9' 9' / DATED : 22ND JULY 2011. ITA NO. 1008 & C.O. NO.125/KOL/2010 7 4 : /2 ;2(< - COPY OF THE ORDER FORWARDED TO: 1. ' /APPLICANT- ASSTT. COMMISSIONER OF INCOME TAX/CIR CLE-40 18 RABINDRA SARAN I PODDAR COURT KOLKATA-700 001. 2 /0 - / RESPONDENT : MUKUL CHATTERJEE 242/2 MANICKTALA MAIN ROAD KOLKATA-700 054. 3. 4% / CIT 4. 4% ( )/ CIT(A) 5. '7 /% / DR KOLKATA BENCHES KOLKATA [ 02 / / TRUE COPY] 4%6 / BY ORDER = / #> /DEPUTY/ASSTT. REGISTRAR . [KKC '?@ %A> B' /SR.PS]