The ACIT, Circle-6,, Surat v. M/s. Bhagwati Corporation, Surat

ITA 2678/AHD/2008 | 2005-2006
Pronouncement Date: 31-01-2011 | Result: Dismissed

Appeal Details

RSA Number 267820514 RSA 2008
Assessee PAN AAFFB9731Q
Bench Ahmedabad
Appeal Number ITA 2678/AHD/2008
Duration Of Justice 2 year(s) 6 month(s) 3 day(s)
Appellant The ACIT, Circle-6,, Surat
Respondent M/s. Bhagwati Corporation, Surat
Appeal Type Income Tax Appeal
Pronouncement Date 31-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 31-01-2011
Date Of Final Hearing 17-01-2011
Next Hearing Date 17-01-2011
Assessment Year 2005-2006
Appeal Filed On 28-07-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA J.M. & HON' BLE SHRI N.S. SAINI A.M. ) I.T.A. NO. 2678/AHD./2008 ASSESSMENT YEAR : 2005-2006 ASSISTANT COMMISSIONER OF INCOME TAX -VS.- M/ S. BHAGWATI CORPORATION SURAT CIRCLE-6 SURAT (PAN : AAFFB 9731 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SANJAY RAI D.R. RESPONDENT BY : SMT. PRAKRUTI UPADHYAY A.R. O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 10.06.2008 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-IV SURAT DELE TING THE ADDITION OF RS.61 08 500/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF WATER CONNEC TION CHARGES PAYABLE TO SURAT MUNICIPAL CORPORATION FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF DEVELOPMENT AND MARKETING OF LAND BELONGING TO M AFATLAL INDUSTRIES (MIL) FOR THEIR LAND UNDER AN AGREEMENT EXECUTED ON 19.06.2002. THE CONT RACTUAL WORK WAS STATED IN ASSESSMENT YEAR 2003-04 AND WAS COMPLETED IN THE ASSESSMENT YEAR UN DER APPEAL. FOR THE ASSESSMENT YEAR UNDER APPEAL THE ASSESSEE-FIRM FILED THE RETURN OF INCOM E DECLARING TOTAL INCOME OF RS.29 72 623/-. THE ASSESSING OFFICER FRAMED THE ASSESSMENT UNDER SECTI ON 143(3) ON 28.12.2007 AT A TOTAL INCOME OF RS.90 81 123/-. THE DIFFERENCE BETWEEN THE RETURNED INCOME AND ASSESSED INCOME IS ON ACCOUNT OF DISALLOWANCE OF WATER CONNECTION CHARGES PAYABLE TO SURAT MUNICIPAL CORPORATION AMOUNTING TO RS.61 08 500/-. THE REASONING GIVEN BY THE ASSES SING OFFICER FOR NOT ALLOWING THE WATER CONNECTION CHARGES AMOUNTING TO RS.61 08 500/- ARE AS UNDER :- (I) THE ASSESSEE-FIRM HAD SUO MOTO CLAIMED THE EXPE NSES EVEN WHEN THE NFL HAS NOT DENIED THE PAYMENT AND IN FACT THERE WAS NO D IRECT DEMAND FROM THE MUNICIPAL CORPORATION WHEN THE ASSESSEE HAD DECIDED TO CLAIM THE EXPENSES. 2 ITA NO. 2678-AHD-2008 (II) THE ASSESSEE HAD UNILATERALLY DECIDED TO CLAIM THE EXPENSES ON GUESS WORK IT SHOULD HAVE EXERCISED TWO PRUDENT OPTIONS ONE WAS TO MAKE ONLY A PROVISION INSTEAD OF SIMULTANEOUSLY CLAIMING IT AS AN EXPENDI TURE AND ANOTHER WAS TO DEMAND IT AS REIMBURSEMENT FROM CONTRACTEE AS THE CEILING LIMIT OF DEVELOPMENT COST WAS HARDLY EXHAUSTED WHILE SIMULTANEOUSLY SHO WING IT AS INCOME (INPUT) ON MERCANTILE BASIS BY DEBITING THE CONTRACTEES ACCOU NT. THE ASSESSEE HAS NOT DONE EITHER OF THE TWO AND HENCE VIOLATED THE BASIC ACCO UNTING PRINCIPLE OF MATCHING CONCEPT. THEREFORE IT IS HARD TO DIGEST THAT WHEN THERE IS NO MATCHING INCOME NO ONE CAN CLAIM FULL DEDUCTION OF EXPENSES. (III) THE LIABILITY OF PAYMENT WATER CONNECTION CHA RGES ON BEHALF OF AGREEMENT IS ONLY A CONTRACTUAL LIABILITY. IT MIGHT BE A STATUTO RY LIABILITY IN THE HAND OF CONTRACTEE IN WHOSE NAME THE BILL WAS RAISED BY TH E SMC BUT ONCE THE ASSESSEE HAD DECIDED EVEN IF BY WRONG WAY TO PAY THE AMOUN T IT BECAME A CONTRACTUAL LIABILITY IN THE HANDS OF ASSESSEE-FIRM. 3. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) THE LD. COUNSEL OF THE ASSESSEE CONTENDED THAT THE ASSESSEE WAS ENGAGE D IN THE BUSINESS OF DEVELOPMENT AND MARKETING OF LAND BELONGING TO MAFATLAL INDUSTRIES FOR THEIR LAND UNDER AN AGREEMENT EXECUTED ON 19.6.2002. THE CONTRACTUAL WORK WAS STARTED IN AY 2 003-04 AND COMPLETED IN AY 2005-06. THERE WAS NO FURTHER INCOME SUBSEQUENT TO AY 2005-0 6 PERTAINING TO THE CONTRACT. IT WAS CONTENDED THAT AS PER TERMS OF AGREEMENT THE ASSESS EE-FIRM WAS UNDER OBLIGATION TO COMPLETE THE DEVELOPMENT WORK ON THE LAND INCLUDING ALL FEES AND EXPENSES BUT EXCLUDING STAMP DUTY AND REGISTRATION CHARGES AND WAS REQUIRED TO INCUR DEVE LOPMENT EXPENSES OF RS.2 71 57 756/- MATERIAL COST OF RS.43 93 217/- AND PAYMENT TO COLL ECTOR SURAT FOR CONVERSION OF AGRICULTURAL LAND TO NON-AGRICULTURAL ONE AT RS.3 44 00 962/-. I T WAS ALSO CONTENDED THAT BOTH THE PARTIES AGREED THAT SMC WATER CONNECTION CHARGES WERE TO BE BORNE BY THE ASSESSEE-FIRM AND PAYMENT TO COLLECTOR WAS TO BE BORNE BY MIL THE CONTRACTEE. THE ASSESSEE-FIRM HAD CARRIED OUT ONLY ONE LAND DEVELOPMENT WORK UNDER REFERENCED AND THE EXPE NSES OF SMC WATER CONNECTION PERTAINING TO THE SAME CONTRACT WORK ONLY. IT WAS STATED THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND HAD SHOWN ENTIRE INCOME OF THE CO NTRACT WORK IN THE YEAR UNDER APPEAL 3 ITA NO. 2678-AHD-2008 THEREFORE THE ASSESSEE WAS ENTITLED TO CLAIM THE E XPENDITURE PERTAINING TO THE SAID CONTRACT WORK DURING THE YEAR UNDER APPEAL. 4. AFTER CONSIDERING THE AFORESAID SUBMISSIONS IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE AFO RESAID DISALLOWANCE OF RS.61 08 500/- FOR THE DETAILED REASONS GIVEN IN PAGES 3 & 4 OF THE IM PUGNED ORDER WHICH READS AS UNDER :- I HAVE GONE THROUGH THE DETAILS AND THE AGREEMENT BETWEEN THE APPELLANT AND THE CONTRACTEE. AS PER THE DEVELOPMEN T AGREEMENT THE APPELLANT DEVELOPED 530000 SQ.YDS. OF LAND AND THE DEVELOPMENT COST WAS FIXED AT RS.100 PER SQ.YD. AS PER THE CLAUSE 5 OF T HE AGREEMENT THE CONTRACTEE MIL UNDERTOOK PAYMENT OF ALL FEES AND CH ARGES NOT EXCEEDING RS.100 PER SQ.YD. AND ANY ADDITIONAL COST OVER AND ABOVE THE SAID AMOUNT WOULD BE BORNE BY THE CONTRACTOR. IT IS ALSO SEEN THAT THE DEVELOPMENT WORK WAS COMPLETED IN THE YEAR UNDER AP PEAL AND THE TOTAL GROSS RECEIPTS PERTAINING TO THE CONTRACT ARE CREDI TED IN THE P&L ACCOUNT FOR THE YEAR. THERE WAS NO FURTHER INCOME IN RESPEC T OF THIS CONTRACT SUBSEQUENT TO THE YEAR UNDER APPEAL AND IT IS SEEN THAT EXPENDITURE OF APPROXIMATELY RS.70 000/- IN THE NEXT YEAR HAS NOT BEEN CLAIMED BY THE APPELLANT SINCE THERE WAS NO INCOME. THE AMOUNT OF WATER CONNECTION CHARGES PAID TO THE SMC AS PER MUTUAL UNDERSTANDING BETWEEN THE CONTRACTOR AND THE CONTRACTEE WAS AN ASCERTAINED LI ABILITY AS ON 1.03.2005 WHICH IS RELEVANT TO AY 2005-06. IT IS NO T MATERIAL THAT THE CONTRACTOR I.E. THE APPELLANT WAS INFORMED BY THE C ONTRACTEE REGARDING THE LIABILITY AFTER THE EXPIRY OF THE FINANCIAL YEA R SINCE THE CONTRACTOR AS SUCH HAD NO LOCUS STANDI WITH THE SMC AND THE SMC W OULD RAISE THE DEMAND ONLY ON THE OWNER OF THE LAND I.E. THE CON TRACTEE. I AM INCLINED TO AGREE WITH THE APPELLANT THAT THE LIABILITY CRYS TALLIZED AS ON 1.3.2005 THE MOMENT SMC RAISED A DEMAND ON THE CONTRACTEE SI NCE AS PER MUTUAL AGREEMENT THIS AMOUNT WAS TO BE BORNE BY THE CONTRA CTOR. IT IS ALSO SEEN THAT OTHER EXPENDITURE FOR GETTING THE LAND CONVERT ED FROM AGRICULTURAL TO NON-AGRICULTURAL LAND HAS BEEN PAID BY THE CONTRACT EE AS MUTUALLY AGREED TO BY THE TWO PARTIES. THIS LIABILITY CANNOT BE TER MED AS A CONTINGENT LIABILITY OR A LIABILITY U/S. 43B OF THE I.T. ACT. IT IS ALSO NOT DISPUTED BY THE A.O. THAT THE SAID AMOUNT HAS BEEN PAID BY THE APPE LLANT AND THE SAME HAS NOT BEEN REIMBURSED OR CLAIMED BY THE CONTRACTE E AS EXPENDITURE. I AM ALSO INCLINED TO AGREE WITH THE APPELLANT THAT T HE AMOUNT HAS BEEN CLAIMED AS PER AS-7 AND THEREFORE THE A.O. WAS NOT JUSTIFIED IN DISALLOWING THE EXPENDITURE CLAIMED BY THE APPELLAN T IN THIS RESPECT. THE ADDITION THEREFORE IS DIRECTED TO BE DELETED. AGGRIEVED WITH THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4 ITA NO. 2678-AHD-2008 5. AT THE TIME OF HEARING BEFORE US ON BEHALF OF R EVENUE SHRI SANJAY RAI LD. D.R. APPEARED AND CONTENTED THAT THERE WAS NO OBLIGATION ON THE P ART OF THE ASSESSEE TO PAY WATER CONNECTION CHARGES PAYABLE TO SURAT MUNICIPAL CORPORATION AMOU NTING TO RS.61 08 500/-. HE SUBMITTED THAT AS PER THE DEVELOPMENT AGREEMENT EXECUTED ON 19.06. 2002 THE ASSESSEES LIABILITY IS RESTRICTED TO RS.100/- PER SQ.YD. THE EXCESS AMOUNT IS A LIABILIT Y OF MIL/NFL. IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MERELY DELETED THE ADDITION OBSERVING THAT IT IS BASED ON MUTUAL AGREEMENT. HE SUBMITTED THAT BEFORE THE ASSESSING OFFICER THE ASSESSEE PRODUCED ONLY ONE AGREEMENT AND NO SUPPLEMENTARY AG REEMENT WAS FURNISHED BEFORE THE ASSESSING OFFICER. THE LD. D.R. FURTHER DREW OUR AT TENTION TO PAGE 27 OF THE PAPER BOOK BEING LETTER DATED 01.09.2005 ADDRESSED TO THE ASSESSEE N AMELY M/S/ BHAGWATI CORPORATION BY NAVIN FLUORINE INTERNATIONAL LTD. BHESTAN SURAT. HE SUB MITTED THAT IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR THERE WAS A DISPUTE THAT WHO SHOUL D PAY THE WATER CONNECTION CHARGES TO THE SURAT MUNICIPAL CORPORATION. THEREFORE THESE ARE N OT ALLOWABLE IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. 6. ON THE OTHER HAND SMT. PRAKRUTI UPADHYAY LD. C OUNSEL APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS). SHE POINTED OUT THAT AS PER 3(C)(III) OF THE DEVELO PMENT AGREEMENT DATED 23.01.2000 BETWEEN THE ASSESSEE AND MIL CHARGES NOT EXCEED RS.100/- PER S Q.YD. WERE TO BE PAID BY MIL/ NFL. ANY DEVELOPMENT EXPENSES IN EXCESS OF RS.100/- WAS TO B E PAID BY THE ASSESSEE-COMPANY FROM ITS SHARE OF PROFIT. THIS EXACTLY HAS BEEN PAID BY THE ASSESSEE AND IS IN ACCORDANCE WITH THE AGREEMENT DATED 23.01.2002. SHE CATEGORICALLY POINT ED OUT THAT THERE IS NO SUPPLEMENTARY AGREEMENT AS ALLEGED BY THE LD. D.R. WITH REGARD TO LETTER DATED 01.09.2005 OF NAVIN FLUORINE INTERNATIONAL LTD. WHICH IS APPEARING IN PAGE 27 OF THE PAPER BOOK SHE POINTED OUT THAT DEVELOPMENT WORK HAS BEEN CARRIED OUT BY THE ASSESS EE-COMPANY ON BEHALF OF THE OWNER NAMELY M/S. MAFATLAL INDUSTRIES (MIL). THEREFORE ALL THE BILLS OF ARCHITECTS STRUCTURAL ENGINEERS CONSULTANTS LAWYERS DEVELOPMENT CHARGES ETC. WER E IN THE NAME OF ORIGINAL OWNER. THE OWNER/ CONTRACTEE ARE REQUIRED TO PAY ONLY A SUM NOT EXCEE DING RS.100/- PER SQ.YD. THE BILL OF SURAT MUNICIPAL CORPORATION IS RECEIVED IN THE PREVIOUS Y EAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL WHICH WAS ACCEPTED BY THE ASSESSEE THEREFO RE RIGHTLY CLAIMED IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. 5 ITA NO. 2678-AHD-2008 7. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT BEFORE THE ASSE SSING OFFICER VIDE LETTER DATED 04.12.2007 THE ASSESSEE SUBMITTED AS UNDER :- EVEN THOUGH THE NOTICE FROM THE SMC DATED 01.03.20 05 IS ADDRESSED TO NFL EXPENSE OF RS.61 08 500/- IS TO BE BORNE BY US IN VIEW OF CLAUSE 3(E)(IX) OF THE AGREEMENT DATED 23.01.2002 BETWEEN MIL & U S. WE ARE REPRODUCING THE SAID CLAUSE HEREIN UNDER FOR YOUR READY REFER ENCE: THAT THE COST OF DEVELOPMENT OF THE SAID LAND INCL UDING ALL FEES PREMIA OR CHARGES OR THE LIKE TO AUTHORITIES OR OTHERWISE INCLUDING PROFESSIONALS LIKE ARCHITECTS STRUCTURAL ENGINEERS CONSULTANTS LAWYERS RELATING TO AND/OR OBTAINING A PPROVALS PERMISSIONS SANCTIONS FOR THE PROPOSED DEVELOPMENT AND/OR FOR THE MARKETING THEREOF BUT EXCLUDING STAMP DUTY AND REGISTRATION CHARGES WOULD NOT EXCEED RS.100/- PER SQ. YARD. HENCE THE WORDINGS OF THE ABOVE CLAUSE OF THE AGRE EMENT ITSELF CLEARLY REFLECT THAT SO FAR AS THE QUESTION OF OUR BEARING THE EXP ENSES ABOVE RS.100/- PER SQ. YD. IS CONCERNED IT RELATES NOT ONLY TO WATER CONN ECTION CHARGES BUT TO ALL THE EXPENSES INCURRED IN THE PROCESS OF DEVELOPMENT OF THE SAID LAND. IT IS WORTHWHILE TO NOTE THAT IN COMPUTATION OF DE VELOPMENT EXPENSES AT RS.100/- PER SQ. YD. A SUM OF RS.61 08 500/- IS NO T CONSIDERED AS THE SAME IS OVER AND ABOVE THE DEVELOPMENT EXPENSES CALCULATED AT RS.100/- PER SQ. YD. FOR CONFIRMATION OF THIS FACT A LETTER IS ISSUED B Y NFL TO US IN SEPT. 2005 IS ENCLOSED. THUS AS PER THE AGREEMENT THIS IS A PART OF OUR CONTRACTUAL LIABILITY AND HENCE BEEN DULY BORNE BY US. 8. IN THE IMPUGNED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS MERELY RELIED ON THE DEVELOPMENT AGREEMENT EXECUTED ON 23. 01.2002 BETWEEN THE ASSESSEE AND MIL. THERE IS NO SUPPLEMENTARY AGREEMENT WHICH IS RELIED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) IN THE IMPUGNED ORDER. SINCE CLAUSE 3 (E)(IX) OF THE AGREEMENT DATED 23.01.2002 CLEARLY INDICATES THAT DEVELOPMENT EXPENSES ONLY TO THE EXTENT OF NOT EXCEED RS.100/- PER SQ. YD. WERE TO BE BORNE BY THE CONTRACTEE NAMELY MIL/ NFL . THEREFORE ANY AMOUNT IN EXCESS OF RS.100/- PER SQ. YD. IS TO BE BORNE BY THE ASSESSEE -FIRM. THIS AMOUNT HAS BEEN PAID BY THE ASSESSEE AND THIS EXPENSE HAS NOT BEEN CLAIMED BY T HE CONTRACTEE NAMELY MIL/ NFL. TO SUM UP THE ASSESSING OFFICER MADE THE ADDITION ON DOUBTS A ND SUSPICION AND THE LEARNED COMMISSIONER 6 ITA NO. 2678-AHD-2008 OF INCOME TAX (APPEALS) HAS GIVEN COGENT REASON FOR DELETING THE SAME. WE THEREFORE INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS). 9. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 31.01.20 11 SD/- SD/- (N.S. SAINI) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 31/ 01 / 2011 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A.) CONCERNED (4) CIT CONCERNED (5) D.R. ITAT AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR ITAT AHMEDABAD LAHA/SR.P.S.