The ITO, Ward-5(4),, Surat v. The Choryasi Taluka Co.Op.Milk Sales So.Ltd.,, Surat

ITA 2518/AHD/2009 | 2006-2007
Pronouncement Date: 08-07-2011 | Result: Dismissed

Appeal Details

RSA Number 251820514 RSA 2009
Assessee PAN AAAAT2955J
Bench Ahmedabad
Appeal Number ITA 2518/AHD/2009
Duration Of Justice 1 year(s) 10 month(s) 7 day(s)
Appellant The ITO, Ward-5(4),, Surat
Respondent The Choryasi Taluka Co.Op.Milk Sales So.Ltd.,, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 08-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 08-07-2011
Date Of Final Hearing 05-07-2011
Next Hearing Date 05-07-2011
Assessment Year 2006-2007
Appeal Filed On 31-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL VP AND BHAVNESH SAINI JM) ITA NO.2518/AHD/2009 A. Y.: 2006-07 THE INCOME TAX OFFICER WARD 5 (4) ROOM NO.316 AAYAKAR BHAVAN MAJURA GATE SURAT VS THE CHORYASI TALUKA CO.OP. MILK SALES SOCIETY LTD. AMBAJI ROAD SURAT PA NO. AAAAT 2955 J (APPELLANT) (RESPONDENT) APPELLANT BY SHRI J. P. JANGID SR. DR RESPONDENT BY SSHRI K. N. BHATT AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-II I SURAT DATED 30 TH JUNE 2009 FOR ASSESSMENT YEAR 2006-07 ON THE FOLL OWING GROUND: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT (A)-III HAS ERRED DELETING THE ADD ITION OF RS.58 88 334/- HOLDING THAT THE ASSESSEE HAD RESOLV ED TO CONSTRUCT THE FLATS WITH A VIEW TO SELL IT AND IT W AS PROPER AS ULTIMATELY THE PROFIT OUT OF THE SALE OF FLATS W AS TO BE UTILIZED TOWARDS THE STATED OBJECTIVES AS PER THE B YE-LAWS OF THE SOCIETY. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN DAIRY ACTIVITIES. IT SEEMS THAT IN THE LINE WITH A RESOLUTION PASSED BY THE SOCIETY IT WAS DECIDED TO CONSTRUCT FLAT WITH AN INTENTION TO SELL THEM. THE CONSTRUCTION HAS BEE N GOING ON FOR LAST ITA NO.2518/AHD/2009 ITO W-5(4) SURAT VS THE CHORYASI TALUKA CO-OP. MI LK SALES SOCIETY LTD. 2 A FEW YEARS AND THE CUMULATIVE COST IS AROUND RS.59 01 997/-. IN THE ASSESSMENT YEAR UNDER APPEAL THE FLATS HAVE BEEN S OLD FOR RS.80 36 773/-. THE AO SHOW CAUSED TO ASCERTAIN WHE THER THE CONSTRUCTION ACTIVITY WITH A VIEW TO SELL WAS AN AU THORIZED ACTIVITY OF THE ASSESSEE AS PER BYE LAWS. WHEN INFORMED ABOUT THE AUTHORIZATION THROUGH A RESOLUTION OF THE SOCIETY T O THIS EFFECT THE SAME HAS NOT BEEN COMMENTED UPON. THE AO INSTEAD NO TED THAT THE EXPENSES TOWARDS THE COST OF CONSTRUCTION HAD BEEN INCURRED IN PRECEDING YEARS TO A LARGE EXTENT AND DID NOT PERTA IN TO THE CURRENT YEAR HENCE DISALLOWABLE. ADDITION OF RS.58 88 334/ - WAS MADE WITHOUT EFFECTIVELY COMMENTING ON THE ASSESSEES RE PLY AS PER OBSERVATION ON THE BOTTOM OF PAGE 6. BEFORE THE LE ARNED CIT(A) WRITTEN SUBMISSION WAS FILED. THE BASIC THRUST IS T HAT THE ASSESSEE HAD RESOLVED TO CONSTRUCT THE FLATS WITH A VIEW TO SELL THE SAME. THE CONSTRUCTION HAD BEEN GOING ON. THIS YEAR ON COMPLE TION THE FLATS HAVE BEEN SOLD AND PROFIT EARNED THERE ON HAS BEEN INCLUDED IN THE NET PROFIT. THE BOOKS OF ACCOUNTS HAVE BEEN AUDITED BY A QUALIFIED CHARTERED ACCOUNTANT AND NOTHING ADVERSE HAS BEEN N OTED. ALL RECEIPTS ARE NOT INCOME WHICH IS WHAT HAS BEEN MADE BY THE AO BY DISALLOWING THE COST AS PRIOR PERIOD EXPENSES. LAST LY IT IS ARGUED THAT WHAT CAN BE TAXED IS ONLY REAL INCOME AND NOT A HYP OTHETICAL FIGURE OF INCOME. 3. THE LEARNED CIT(A) CONSIDERING THE EXPLANATIONS OF THE ASSESSEE DELETED THE ADDITION AND ALLOWED THE APPEA L OF THE ASSESSEE. HIS FINDINGS IN THE IMPUGNED ORDER ARE RE PRODUCED AS UNDER: ITA NO.2518/AHD/2009 ITO W-5(4) SURAT VS THE CHORYASI TALUKA CO-OP. MI LK SALES SOCIETY LTD. 3 I HAVE CONSIDERED THE ISSUE. THE CRUX OF THE MATTE R IS THAT THE CONSTRUCTION OF FLAT TO EARN PROFIT WAS AU THORIZED AS THE PROFIT WAS TO BE UTILIZED TOWARDS THE STATED OBJECTIVES AS PER BYE LAW. THE COPY OF THE RESOLUTI ON TO THIS EFFECT IS AVAILABLE ON RECORD. THE SALE PROCEE DS WILL HAVE TO WEIGHED AGAINST THE EXPENDITURE TOWARDS THE COST. BY DISALLOWING THE COST THE A.O. SEEMS TO BE SEEKING TO TAX THE ENTIRE SALE PROCEEDS. SECONDLY T HE NET PROFIT INCLUDES THE ELEMENT OF PROFIT ON THIS CONST RUCTION ACTIVITY. SINCE THE PROFIT IS AVAILABLE FOR UTILIZA TION TOWARDS THE OBJECTIVES AS PER BYE LAW THE ENTIRE ARRANGEMEN T IS WELL WITHIN PARAMETERS OF LAW AND WILL HAVE TO BE A LLOWED. THE CONFUSION IN THE A.O.S MIND SEEMS TO BE ALSO O N ACCOUNT OF METHOD OF PROFIT DETERMINATION. HERE THE APPELLANT HAS FOLLOWED COMPLETION METHOD AND THAT I S WHY THE EXPENDITURE INCURRED IN PRECEDING YEARS WILL HA VE TO BE ALLOWED WHEN THE SALES ARE EFFECTED WHICH IS THI S CASE IS CURRENT YEAR. THE A. O. IS DIRECTED TO DELETE TH E ADDITION MADE ON THIS ACCOUNT. IN THE RESULT THE APPEAL IS ALLOWED. 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE FINDINGS OF THE AUTHORITIES BELOW. THE ASSESSEE IS A CO-OPERATIVE SOCIETY AND IS ENGAGED IN THE BUSINESS OF DAIRY AND MANUFACTURING DAIRY PRODUCTS AS PER THE BYE LAWS OF THE SOCIETY. THE AO ON EXAMINATION OF THE ACCOUNTS FOUND THAT SALE PRICE O F FLATS/SHOPS ARE FOR RS.80 36 773/- AS REFLECTED IN THE PROFIT & LOS S ACCOUNTS AND EXPENSES FOR COMPLETION OF CONSTRUCTION OF RS.59 01 997/- IS DEBITED IN THE PROFIT & LOSS ACCOUNTS. THE AO FURTHER NOTED THAT THE ITA NO.2518/AHD/2009 ITO W-5(4) SURAT VS THE CHORYASI TALUKA CO-OP. MI LK SALES SOCIETY LTD. 4 CONSTRUCTION WAS MADE WITH INTENTION OF SELLING AND NOT FOR USE OF THE SOCIETY AND DETERMINED THE NET PROFIT OF RS.9 94 47 1/-. THE AO THEREFORE NOTED THAT THE ASSESSEE HAS CONSTRUCTED THE COMPLEX WITH AN INTENTION OF SELLING IT AND NOT FOR USE OF THE S OCIETY. IT WAS ALSO NOTED THAT THE COMPUTATION WOULD SHOW CAPITAL GAIN IS NOT WORKED OUT IN COMPUTATION SHEET. THE AO ALSO NOTED THAT THERE IS NO PROVISION IN THE BYE LAWS OF THE ASSESSEE FOR CONSTRUCTION OF CO MPLEX AND THAT ANNUAL ACCOUNTS REFLECTED THE NET PROFIT OUT OF SAL E OF THE COMPLEX. THE AO ALSO NOTED THAT THE CONSTRUCTION COST OF THE COMPLEX ANAMAT IS REFLECTED AT RS.58 88 334/- IN THE BALANCE SHEET AS ON 31-03-2004. THE DETAILS OF CONSTRUCTION OF THE COMPLEX ANAMAT A CCOUNT IN EARLIER YEARS ARE ALSO NOTED IN THE ASSESSMENT ORDER. THE A O THEREFORE DIRECTED THE ASSESSEE TO EXPLAIN THE POSITION BY GI VING THE ACTUAL FACTS WITH REGARD TO CONSTRUCTION OF THE COMPLEX. I N RESPONSE TO THE SHOW CAUSE NOTICE THE ASSESSEE FILED REPLY WHICH IS REPRODUCED BY THE AO IN THE ASSESSMENT ORDER. THE AO AFTER REPRO DUCING THE REPLY OF THE ASSESSEE DISALLOWED THE CONSTRUCTION EXPENDI TURE OF RS.58 88 334/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. THE OPERATIVE PORTION OF THE ORDER OF THE AO READS AS UNDER: AFTER CAREFULLY CONSIDERING YOUR REPLY I AM NOT F ULLY CONVENIENCE WITH YOUR REPLY AND THEREFORE I DISALL OWED TOTAL CONSTRUCTION EXPENDITURE OF RS.58 88 334/- AN D ADDED TO THE RETURN INCOME. A PENALTY U/S 271(1) ( C ) OF THE I.T. ACT IS INITIATED FOR FURNISHING INACCURATE PARTICULARS. THE ABOVE DETAILS NOTED IN THE ASSESSMENT ORDER WOU LD REVEAL THAT THOUGH THE AO AGITATED THE MATTER WITH REGARD TO TH E CONSTRUCTION OF ITA NO.2518/AHD/2009 ITO W-5(4) SURAT VS THE CHORYASI TALUKA CO-OP. MI LK SALES SOCIETY LTD. 5 THE COMPLEX AND ALSO RAISED THE ISSUE OF CAPITAL GA INS BUT ULTIMATELY DISALLOWED THE EXPENSES. HE HAS NOT GIVEN ANY REASO NS IN THE ASSESSMENT ORDER AS TO HOW THE CONSTRUCTION EXPENSE S HAVE BEEN DISALLOWED. IN THE ABSENCE OF ANY REASONS FOR DECIS ION IN THE ASSESSMENT ORDER THE ORDER OF THE AO CANNOT BE SUS TAINED IN LAW. THIS ITSELF IS SUFFICIENT TO DISMISS THE DEPARTMENT AL APPEAL. FURTHER THE AO FORGOT TO NOTE THAT WHEN IN THE PROFIT & LOS S ACCOUNTS IN THE YEAR UNDER APPEAL THE SALE PRICE HAS BEEN SHOWN ALO NG WITH EXPENSES FOR COMPLEX CONSTRUCTION THE ENTIRE SALES CANNOT BE CONSIDERED AS INCOME OF THE ASSESSEE. THE COST OF C ONSTRUCTION SHALL HAVE TO BE DEDUCTED FROM THE SALE PRICE. IN THE ABS ENCE OF ANY REASONS GIVEN IN THE ASSESSMENT ORDER THE AO WAS N OT JUSTIFIED TO DISALLOW THE CONSTRUCTION EXPENSES. FURTHER THE AS SESSEE SUBMITTED BEFORE THE LEARNED CIT(A) THAT THIS YEAR ON COMPLET ION THE FLATS HAVE BEEN SOLD AND PROFIT EARNED THERE ON HAS BEEN INCLU DED IN THE NET PROFIT. THE LEARNED CIT(A) THEREFORE RIGHTLY NOTE D THAT SINCE THE ASSESSEE FOLLOWED COMPLETION METHOD AND THAT IS WHY THE EXPENDITURE INCURRED IN THE PRECEDING YEARS SHALL H AVE TO BE ALLOWED WHEN THE SALES ARE EFFECTED WHICH IS THE CURRENT YE AR. THEREFORE THERE WAS NO JUSTIFICATION FOR DISALLOWING THE COST OF CONSTRUCTION. THE AO HAS NOT GIVEN ANY OTHER REASONS FOR DISALLOWING THE CLAIM OF THE ASSESSEE BECAUSE ULTIMATELY THE ASSESSEES INCOME I S COMPUTED AT RS.58 88 334/- WHICH IS THE SAME AMOUNT DISALLOWED ON ACCOUNT OF CONSTRUCTION EXPENSES. IT THEREFORE APPEARS THAT THE GROUND OF APPEAL NOW RAISED BEFORE THE TRIBUNAL WOULD NOT ARI SE FROM THE ORDER OF THE AO. CONSIDERING THE FACTS AND CIRCUMSTANCES WE DO NOT FIND ITA NO.2518/AHD/2009 ITO W-5(4) SURAT VS THE CHORYASI TALUKA CO-OP. MI LK SALES SOCIETY LTD. 6 ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(A). W E CONFIRM HIS FINDING AND DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 6. IN THE RESULT THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 08-07-2011 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 08-07-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD