The DCIT, Circle-4,, Ahmedabad v. Max Impex Limited, Ahmedabad

1 IN THE INCOME TAX APPELLATE TRIBUNAL C-BENCH AHMEDABAD. BEFORE: SHRI BHAVNESH SAINI JUDICIAL MEM BER AND SHRI D.C. AGRAWAL ACCOUNTANT MEMBER. ITA NO.1119/AHD/2007 (ASSESSMENT YEAR 2001-2002) THE DCIT CIR-4 AHMEDABAD NAVJIVAN TRUST BLDG. OFF. ASHRAM ROAD AHMEDABAD. VERSUS MAK IMPEX LIMITED 4 TH FLOOR KADAMB NR. RAJVANSH FLATS JUDGES BUNGLOWS RD. AHMEDABAD. (APPELLANT) (RESPONDENT) PAN: AACCM 4010 F FOR THE APPELLANT: SHRI. M.C. PANDIT SR. DR FOR THE RESPONDENT SHRI. S.N. DIVETIA AR ORDER PER D C AGRAWAL (ACCOUNTANT MEMBER): THIS IS AN APPEAL FILED BY THE REVENUE RAISING THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN CANCELING THE PENALTY OF RS.2 90 179/- LEVIED U/S. 271(1)(C) OF THE I.T. ACT 1961 IGNORING THE FACT THAT THE ADDITION MADE ON ACCOUNT OF VALUATION OF WORK-IN-PROGRESS OF GOREGAON PROJEC T WAS CONFIRMED TO THE EXTENT OF RS.7 33 703/- IN THE FIR ST APPEAL. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LD.CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASS ESSING OFFICER. 3. IT IS THEREFORE PRAYED THAT THE ORDER OF THE L D.CIT(A) MAY BE CANCELLED AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED TO THE ABOVE EFFECT. 2. THE FACTS OF THE CASE ARE THAT ASSESSEE IS A CLO SELY HELD COMPANY AND IS ENGAGED IN THE CONSTRUCTION ACTIVITY. IT FI LED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2001-2002 ON 30-10-2001 DECLARI NG TOTAL INCOME AT RS.15 62 123/-. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS THE WORK IN 2 ITA NO.1119/AHD/2007 (ASSESSMENT YEAR 2001-2002) PROGRESS IN RESPECT OF DREAM PLAZA AT MUMBAI WAS HE LD TO BE UNDER STATED BY 14 10 643/- ON ACCOUNT OF ASSESSEE NOT IN CLUDING VARIOUS EXPLANATIONS SUCH AS ADMINISTRATIVE COST IMPLIES CO ST DEPRECIATION ETC. THE ASSESSEE PREFERRED APPEAL BEFORE LD. COMMISSION ER OF INCOME TAX(APPEALS) WHO PARTIALLY REDUCED THE SAID ADDITI ON TO 50% OF ACTUAL COST INCURRED AS AGAINST 95% TAKEN BY THE ASSESSING OFFICER. IT RESULTED IN RETAINING AN ADDITION OF RS.7 33 703/-. ON THE BASIS OF THIS ADDITION SUSTAINED LEARNED ASSESSING OFFICER SOUGHT TO LEVY THE PENALTY UNDER SECTION 271(1)(C). A SHOW CAUSE NOTICE WAS GIVEN I N RESPONSE TO WHICH ASSESSEE HAS FURNISHED THE EXPLANATION WHICH IS REF ERRED TO BY LEARNED ASSESSING OFFICER IN THE PENALTY ORDER. REJECTING THE EXPLANATION LEARNED ASSESSING OFFICER LEVIED PENALTY AT RS.2 90 179/-. THE PENALTY WAS CANCELLED BY LD. COMMISSIONER OF INCOME TAX(APPEALS ) ON THE BASIS OF FOLLOWING FACTS. (A) THE APPELLANT WAS FOLLOWING CONSISTENTLY THE ME THOD OF VALUATION OF CLOSING STOCK FOR PAST SO MANY YEARS A ND THIS METHOD HAS BEEN ACCEPTED BY THE DEPARTMENT. (B) AS PER CA INSTITUTES GUIDELINES AS2 PARA 4.2 COST OF INVENTORY SHOULD NOT INCLUDE ADMINISTRATIVE OVERHEA DS AMONG OTHER THINGS. THIS METHOD WAS BEING FOLLOWED BY THE APPELLANT. (C) THE APPELLANT HAS FILED ALL PARTICULARS RELATIN G TO COMPUTATION OF INCOME. IN FACT FROM THE ANNUAL ACCOUNTS THE AO HAS ONLY TAKEN THE FIGURE OF ADMINISTRATIVE EXPENSES AN D EMPLOYEES COST AND DEPRECIATION FOR THE PURPOSE OF RECOMPUTING THE VALUE OF WORK-IN-PROGRESS. SO IT I S CLEAR THAT THE AO HAS NOT DETECTED ANY FACT WHICH WAS SUP PRESSED OR NOT DISCLOSED BY THE APPELLANT. 3 ITA NO.1119/AHD/2007 (ASSESSMENT YEAR 2001-2002) 3. THE LD. CIT(A) FINALLY HELD THAT ASSESSEE HAS NE ITHER CONCEALED ANY INCOME NOR FURNISH INACCURATE PARTICULARS OF IN COME. HE ALSO REFERRED TO FOLLOWING JUDGMENTS IN SUPPORT OF HIS DECISION. THE ABOVE VIEW HAS BEEN HELD IN THE FOLLOWING CAS ES ALSO: (A) CIT VS. M.M. RICE MILLS 253 ITR 17 (P & H) (B) BOMBAY HARDWARE SYNDICATE VS. CIT 114 ITR 586 (MAD ) (C) SIVLAL TAK VS. CIT 166 CTR 534 (RAJ.) (D) CIT VS. AARKAY SAREE MUSEUM 187 ITR 147 (BOM) (E) NAVJIVAN MILLS VS. CIT 252 415 (GUJ.) 4. WE HAVE HEARD THE PARTIES AND CAREFULLY PERUSED THE MATERIAL ON RECORD. LD. AR HAS SUBMITTED THAT ADDITION OF RS. 7 33 703/- SO RETAINED BY LEARNED CIT(A) IN QUANTUM ADDITION HAS BEEN FINA LLY DELETED BY THE TRIBUNAL IN THEIR ORDER IN ITA NO. 172/A/2005 PRONO UNCED ON 24-10- 2008. IN THIS REGARD WE REFER TO PARA 6 FROM THEIR ORDER AS UNDER: 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. THE ASSESSEES BOOKS OF ACCOUNT WERE AUDITED BY THE CHA RTERED ACCOUNTANT. THE TAX AUDIT SPECIFICALLY STATED THAT ASSESSEE IS ENGAGED IN TWO BUSINESSES. THE ASSESSEE HAS CONSTR UCTED INDUSTRIAL GALAS WHICH WERE COMPLETED IN EARLIER YE ARS. THE AO HAS TREATED 5% OF THE TOTAL EXPENSES INCURRED FOR E ARNING THE INTEREST INCOME I.E. OTHER INCOME. THE AO HAS TRE ATED 95% AS EXPENSES INCURRED FOR CONSTRUCTION ACTIVITIES AND S AME WAS ADDED TO THE WORK IN PROGRESS. THE AO HAS ALSO INCLUDED THE ASSESSEES EMPLOYEES ADMINISTRATIVE EXPENSES AND DEPRECIATION AS ATTRIBUTABLE TO UNCOMPLETED PROJECT AS THESE EXPENS ES RELATE TO SHARE BUSINESS AND CONSTRUCTION DEALING ACTIVITIES WE FIND THAT THE AO HAS WITHOUT ANY BASIS TAKEN 5% AS COMMON EXPENSE S FOR EARNING THE INTEREST INCOME. WE FIND THAT INDIRECT EXPENSES CANNOT BE ALLOCATED TO WORK IN PROGRESS. WE FIND THAT TO DETERMINE THE CLOSING WORK IN PROGRESS AS HELD IN BRITISH PAINTS 188 ITR WHEREIN IT IS HELD THAT THE WHILE VALUING THE WORK IN PROGR ESS THE RAW MATERIALS MAINTENANCE SUPPLIES CONSUMABLES AND LO OSE TOOLS AWAITING USING IN PRODUCTION PROCESS AND WORK IN PR OGRESS WILL NOT INCLUDE ANY MACHINERY SPARES WHICH CAN BE USED ONLY IN 4 ITA NO.1119/AHD/2007 (ASSESSMENT YEAR 2001-2002) CONNECTION WITH AN ITEM OF FIXED ASSETS AND WHOSE U SE IS EXPECTED TO BE IRREGULAR. SUCH MACHINERY SPARES ARE TO BE A CCOUNTED IN ACCORDANCE WITH AS-10. THE COST WILL NOT INCLUDE ADMINISTRATIVE OVERHEAD EXPENSES INTEREST AND OTHER BORROWING COS T NOT RELATING TO BRINGING TO INVENTORY TO THEIR PRESENT LOCATION. THEREFORE WE ARE OF THE VIEW THAT THE CIT(A) IS NOT JUSTIFIED. WE ACCORDINGLY REVERSE THE ORDER OF THE CIT(A) AND ALLOW THIS GROU ND OF THE ASSESSEE. 5. IN VIEW OF THE DECISION OF TRIBUNAL IN ACIT VS. VIP INDUSTRIES 2009 122 TTJ 29 (MUM) CIT VS. MOHAMMAD BAX SOKAT A LI (2004) 265 ITR 236 (RAJ.) 1999 CITY DRY FISH COMPANY VS. CIT (1999) 238 ITR 63 (AP) AND PRABHAT OIL TRADERS VS. ITO (1996) 218 ITR A.T. 39 ITAT (AHMEDABAD) WHERE IT IS HELD THAT IF ADDITION IS DELETED BY THE TRIBUNAL IN QUANTUM APPEAL THEN VERY FOUNDATION FOR LEVY OF PENALTY CEASED TO EXIST. IN VIEW OF THIS WE CANCEL THE PENALTY AND A LLOW THE APPEAL FILED BY THE ASSESSEE. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 16 TH APRIL 2010. SD/- SD/- (BHAVNESH SAINI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUN TANT MEMBER AHMEDABAD; DATED: 16/04/2010 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT AHMEDABAD BENCHES AHMEDABAD.