The ITO, Ward-8(2),, Ahmedabad v. Sopan Infrastructure Pvt.Ltd.,, Ahmedabad

ITA 295/AHD/2009 | 2005-2006
Pronouncement Date: 22-01-2010 | Result: Dismissed

Appeal Details

RSA Number 29520514 RSA 2009
Assessee PAN AAICS1538A
Bench Ahmedabad
Appeal Number ITA 295/AHD/2009
Duration Of Justice 11 month(s) 23 day(s)
Appellant The ITO, Ward-8(2),, Ahmedabad
Respondent Sopan Infrastructure Pvt.Ltd.,, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 22-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 22-01-2010
Date Of Final Hearing 05-01-2010
Next Hearing Date 05-01-2010
Assessment Year 2005-2006
Appeal Filed On 30-01-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI BHAVNESH SAINI JUDICIAL MEMBER AND SHRI D.C. AGRAWAL ACCOUNTANT MEMBER DATE OF HEARING : 05/01/2010 DRAFTED ON: 19/01 /2010 ITA NO.295/AHD/2009 ASSESSMENT YEAR : 2005-06 THE ITO WARD-8(2) AHMEDABAD VS. SOPAN INFRASTRUCTURE PVT.LTD. 15 SWAQSTIK BUNGALOW PART-II NR.R.C.TECHNICAL INSTITUTE GHATLODIA AHMEDABAD PAN/GIR NO. : AAICS 1538 A (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI P. ORAM SR. D.R. RESPONDENT BY: SHRI S.N. DIVATIA ADV. O R D E R PER D.C.AGRAWAL ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(APPEALS)-XIV AHMEDABAD DATED 03/11/200 8 PASSED FOR ASSESSMENT YEAR 2005-06 BY RAISING FOLLOWING GROUN DS: 1. THE LD. CIT(A)-XIV AHMEDABAD ERRED IN LAW AND ON FACTS IN LOOKING TO THE FACTS OF THE CASE. (I) THE CIT(A) OUGHT TO HAVE UPHELD THE DECISION OF THE ASSESSING OFFICER IN MAKING ADDITIONS ON ACCOUNT O F LOWER VALUATION OF WIP BY RS.3 09 215/-. (II) THE CIT(A) OUGHT TO HAVE UPHELD THE DECISION OF THE ASSESSING OFFICER IN MAKING ADDITIONS ON ACCOUNT OF LOW GP SHOWN IN WIP BY RS.10 48 844/-. ITA NO .295/AHD/2009 ITO VS. SOPAN INFRASTRUCTURE PVT.LTD. ASST.YEAR - 2005-06 - 2 - 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. COMMISSIONER OF INCOME-TAX (A)-XIV AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD . COMMISSIONER OF INCOME-TAX(A)-XIV AHMEDABAD MAY BE SET-ASIDE AN D THAT OF THE ASSESSING OFFICER BE RESTORED. 2. GROUND NOS.2 & 3 ARE GENERAL IN NATURE THEY REQ UIRE NO INDEPENDENT ADJUDICATION AND THEREFORE THE SAME A RE REJECTED AS SUCH. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTI ON. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER FOUND THAT ASSESSEE HAS UNDER-VALUED THE WORK-IN-PROGRESS BY R S.3 09 215. HE FOUND THAT WHILE VALUING THE WORK-IN-PROGRESS ASSESSEE HA S INCLUDED DIRECT EXPENSES BUT IT HAS NOT INCLUDED ADMINISTRATIVE EX PENSES AMOUNTING TO RS.5 95 290/- IF IT IS INCLUDED THEN TOTAL EXPEND ITURE WOULD HAVE COME TO RS.91 23 900/- AS AGAINST RS.85 28 610/- TAKEN BY T HE ASSESSEE FOR VALUING WORK-IN-PROGRESS OF CIVIL CONSTRUCTION WORK. THE ASSESSEE HAD CONSTRUCTED TOTAL AREA OF 2280 SQ.YDS OUT OF WHICH UNSOLD AREA IS 1183 SQ.YDS. THE ASSESSING OFFICER CALCULATED WORK-IN -PROGESS ON THE BASIS OF TOTAL EXPENDITURE AT RS.91 23 900/- AND WORKED O UT THE VALUE OF UNSOLD AREA OF RS.47 34 366/- AS AGAINST RS.44 25 151/- WO RKED OUT BY THE ASSESSEE ON THE BASIS OF TOTAL EXPENDITURE OF RS.8 5 26 610/-. THIS RESULTED IN AN ADDITION OF RS.3 09 215/- IN THE WORK-IN-PROG RESS. ITA NO .295/AHD/2009 ITO VS. SOPAN INFRASTRUCTURE PVT.LTD. ASST.YEAR - 2005-06 - 3 - 4. THE LEARNED CIT(APPEALS) HELD THAT AS PER ACCOUN TING STANDARD A-7 THE ADMINISTRATIVE EXPENSES IS NOT AN ALLOCABL E COST AND HENCE THE SAME SHOULD NOT BE INCLUDED IN THE COST STRUCTURE F OR VALUATION CLOSING STOCK. ACCOUNTING STANDARDS HAVE BEEN RECOGNIZED BY APEX COURT IN THE CASE OF CIT VS. BILA HARI INVESTMENT PVT.LTD. 291 ITR 01 (SC). ACCORDINGLY THE LEARNED CIT(APPEALS) DELETED THE A DDITION. 5. BEFORE US THE LEARNED DEPARTMENTAL REPRESENTATI VE RELIED ON THE ORDER OF THE ASSESSING OFFICER WHEREAS THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE RELIED ON THE ORDER OF LEARNED CIT(APPEALS). 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE DECL INE TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(APPEALS). WE FOR THE SAKE OF CONVENIENCE EXTRACT THE RELEVANT PORTION FROM ACCOUNTING STAND ARD A-7 AS BELOW:- CONTRACT COSTS 15. CONTRACT COSTS SHOULD COMPRISE: A. COSTS THAT RELATE DIRECTLY TO THE SPECIFIC CONTRACT ; B. COSTS THAT ARE ATTRIBUTABLE TO CONTRACT ACTIVITY IN GENERAL AND CAN BE ALLOCATED TO THE CONTRACT; AND C. SUCH OTHER COSTS AS ARE SPECIFICALLY CHARGEABLE TO THE CUSTOMER UNDER THE TERMS OF THE CONTRACT. 16. COSTS THAT RELATE DIRECTLY TO A SPECIFIC CONTRACT I NCLUDE: A. SITE LABOUR COSTS INCLUDING SITE SUPERVISION; B. COSTS OF MATERIALS USED IN CONSTRUCTION; C. DEPRECIATION OF PLANT AND EQUIPMENT USED ON THE CON TRACT; D. COSTS OF MOVING PLANT EQUIPMENT AND MATERIALS TO A ND FROM THE CONTRACT SITE; E. COSTS OF HIRING PLANT AND EQUIPMENT; F. COSTS OF DESIGN AND TECHNICAL ASSISTANCE THAT IS DI RECTLY RELATED TO THE CONTRACT; G. THE ESTIMATED COSTS OF RECTIFICATION AND GUARANTEE WORK INCLUDING EXPECTED WARRANTY COSTS; AND H. CLAIMS FROM THIRD PARTIES. THESE COSTS MAY BE REDUCED BY ANY INCIDENTAL INCOME THAT IS NOT INCLUDED IN CONTRACT REVENUE FOR EXAM PLE INCOME FROM THE SALE OF SURPLUS MATERIALS AND THE DISPOSAL OF PLANT AND EQUIPMENT AT THE END OF THE CONTRACT. ITA NO .295/AHD/2009 ITO VS. SOPAN INFRASTRUCTURE PVT.LTD. ASST.YEAR - 2005-06 - 4 - 17. COSTS THAT MAY BE ATTRIBUTABLE TO CONTRACT ACTIVITY IN GENERAL AND CAN BE ALLOCATED TO SPECIFIC CONTRA CTS INCLUDE: A. INSURANCE; B. COSTS OF DESIGN AND TECHNICAL ASSISTANCE THAT IS NO T DIRECTLY RELATED TO A SPECIFIC CONTRACT; AND C. CONSTRUCTION OVERHEADS. SUCH COSTS ARE ALLOCATED USING METHODS THAT ARE SYS TEMATIC AND RATIONAL AND ARE APPLIED CONSISTENTLY T O ALL COSTS HAVING SIMILAR CHARACTERISTICS. THE ALLOCATION IS B ASED ON THE NORMAL LEVEL OF CONSTRUCTION ACTIVITY. CONSTRUCTION OVERHEADS INCLUDE COSTS SUCH AS THE PREPARATION AND PROCESSING OF CONSTRUCTION PERSONNEL PAYROLL. COST S THAT MAY BE ATTRIBUTABLE TO CONTRACT ACTIVITY IN GENERAL AND CAN BE ALLOCATED TO SPECIFIC CONTRACTS ALSO IN CLUDE BORROWING COSTS AS PER ACCOUNTING STANDARD (AS) 16 BORROWING COSTS. 18. COSTS THAT ARE SPECIFICALLY CHARGEABLE TO THE CUSTO MER UNDER THE TERMS OF THE CONTRACT MAY INCLUDE SOM E GENERAL ADMINISTRATION COSTS AND DEVELOPMENT COSTS FOR WHICH REIMBURSEMENT IS SPECIFIED IN THE TERMS O F THE CONTRACT. 19. COSTS THAT CANNOT BE ATTRIBUTED TO CONTRACT ACTIVIT Y OR CANNOT BE ALLOCATED TO A CONTRACT ARE EXCLUDED FROM THE COSTS OF A CONSTRUCTION CONTRACT. SUCH COSTS IN CLUDE: A. GENERAL ADMINISTRATION COSTS FOR WHICH REIMBURSEMEN T IS NOT SPECIFIED IN THE CONTRACT; B. SELLING COSTS; C. RESEARCH AND DEVELOPMENT COSTS FOR WHICH REIMBURSEM ENT IS NOT SPECIFIED IN THE CONTRACT; AND D. DEPRECIATION OF IDLE PLANT AND EQUIPMENT THAT IS NO T USED ON A PARTICULAR CONTRACT. 20. CONTRACT COSTS INCLUDE THE COSTS ATTRIBUTABLE TO A CONTRACT FOR THE PERIOD FROM THE DATE OF SECURING T HE CONTRACT TO THE FINAL COMPLETION OF THE CONTRACT. HOWEVER C OSTS THAT RELATE DIRECTLY TO A CONTRACT AND WHICH A RE INCURRED IN SECURING THE CONTRACT ARE ALSO INCLUDED AS PART OF THE CONTRACT COSTS IF THEY CAN BE SEPARATELY IDE NTIFIED AND MEASURED RELIABLY AND IT IS PROBABLE THAT THE CONTR ACT WILL BE OBTAINED. WHEN COSTS INCURRED IN SECURI NG A CONTRACT ARE RECOGNISED AS AN EXPENSE IN THE PERIOD IN WHICH THEY ARE INCURRED THEY ARE NOT INCLUDED IN CONTRACT COSTS WHEN THE CONTRACT IS OBTAINED IN A S UBSEQUENT PERIOD. 7. FROM THE READING OF ABOVE STANDARD IT IS CLEA R THAT ADMINISTRATIVE EXPENSES ARE NOT ALLOCABLE. AS PER ITEM NO.19 AD MINISTRATIVE EXPENSES ARE NOT ALLOCABLE UNLESS THEY ARE SPECIFIED IN THE CONTRACT. SINCE THE REVENUE HAS NOT POINTED OUT THAT ALLOCATION OF ADMI NISTRATIVE EXPENSES ARE PART OF THE CONTRACT THE LEARNED CIT(APPEALS) WAS JUSTIFIED IN EXCLUDING THIS ITEM FROM VALUATION OF WORK-IN-PROGRESS. THE REFORE THIS GROUND OF APPEAL OF THE REVENUE IS REJECTED. 8. REGARDING SECOND GROUND WE NOTE FROM THE READI NG OF ASSESSMENT ORDER THAT THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT AND PROCEEDED TO ESTIMATE GROSS PROFIT AT 16% AS AGAIN ST 8.9% SHOWN BY THE ITA NO .295/AHD/2009 ITO VS. SOPAN INFRASTRUCTURE PVT.LTD. ASST.YEAR - 2005-06 - 5 - ASSESSEE. NO DEFECTS IN THE BOOKS OF ACCOUNT HAV E BEEN POINTED OUT. NO REASONS ARE ADVANCED AS TO WHY GROSS PROFIT DECLARE D BY THE ASSESSEE AT 8.9% IS LOW. THE ASSESSING OFFICER PROCEEDED TO E STIMATE THE PROFIT AND MAKE THE ADDITION WITHOUT FOLLOWING BASIC PRINCIPLE S OF INVOKING PROVISIONS OF SECTION 145 OF THE I.T. ACT 1961. THE LEARNED CIT(APPEALS) DELETED ADDITION ON THIS GROUND ALONE. 9. AFTER HEARING THE PARTIES WE DECLINE TO INTERFE RE WITH THE ORDER OF THE LEARNED CIT(APPEALS). BEFORE INVOKING THE SECT ION 145 OF THE I.T. ACT 1961 THE ASSESSING OFFICER HAS TO NECESSARILY REJECT THE BOOKS OF ACCOUNT VERIFY THE BOOKS OF ACCOUNT. WE DRIVE SUP PORT FORM THE FOLLOWING JUDGEMENTS:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. MADNANI CORPORATION PVT.LTD. VS. CIT (2008) 296 ITR 45 (GAUHATI) 2. ITO VS. GIRISH M. MEHTA (2008) 296 ITR (AT) 125 (RAJ.) 3. CIT VS. RAJNIKANT DAVE (2006)281 ITR 06 (ALL.) 4. ASHOLE REFRACTORIES PVT.LTD. VS. CIT `(2005) 279 ITR 457 (CAL.) 5. JUGGILAL KAMLAPAT UDYOG LTD. VS. CIT (2005) 278 ITR 52 (CAL.) 10. THE GIST OF THESE AUTHORITIES IS THAT WHERE ASS ESSEE IS MAINTAINING BOOKS OF ACCOUNT REGULARLY AND THERE IS NO FINDING GIVEN BY THE ASSESSING OFFICER IS THAT INCOME CANNOT BE DEDUCED FORM ACCOU NTS REGULARLY MAINTAINED BY THE ASSESSEE THEN REJECTION OF BOOKS OF ACCOUNT OR ESTIMATION OF THE PROFITS THEREAFTER WILL NOT BE VA LID. ITA NO .295/AHD/2009 ITO VS. SOPAN INFRASTRUCTURE PVT.LTD. ASST.YEAR - 2005-06 - 6 - 11. IN VIEW OF THIS THE ORDER OF THE ASSESSING OFF ICER WAS RIGHTLY NOT UPHELD BY THE LEARNED CIT(APPEALS). AS A RESULT THIS GROUND OF APPEAL OF THE REVENUE IS REJECTED. 12. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 22 /01 /2010. SD/- SD/- ( BHAVNESH SAINI ) ( D.C.AGR AWAL ) JUDICIAL MEMBER ACCOUNTANT M EMBER AHMEDABAD; DATED 22 / 01 /2010 T.C. NAIR COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XIV AHMEDABAD 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD