M/S. SHANTI INVESTMENT, MUMBAI v. ITO WD 25(3)(4), MUMBAI

ITA 5806/MUM/2008 | 2005-2006
Pronouncement Date: 03-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 580619914 RSA 2008
Assessee PAN AABFS6326G
Bench Mumbai
Appeal Number ITA 5806/MUM/2008
Duration Of Justice 2 year(s) 2 month(s) 16 day(s)
Appellant M/S. SHANTI INVESTMENT, MUMBAI
Respondent ITO WD 25(3)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 03-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 03-12-2010
Date Of Final Hearing 22-11-2010
Next Hearing Date 22-11-2010
Assessment Year 2005-2006
Appeal Filed On 17-09-2008
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI V. DURGA RAO JUDICIAL MEMBER. I.T.A. NO. 5806/MUM/2008. ASSESSMENT YEAR : 2005-06. M/S SHANTI INVESTMENT THE INCOME-TAX OFFICER NEEL KAMAL GROUND FLOOR VS. WARD-25(3)(4) MUMBAI. GOKHALE ROAD DHANULKAR WADI KANDIVALI (WEST) MUMBAI 400067. PAN AABFS6326G APPELLANT. RESPOND ENT. APPELLANT BY : SHRI JITENDRA S INGHAVI. RESPONDEN T BY : SHRI D. SANGOTE. O R D E R PER J. SUDHAKAR REDDY A.M. : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS) -XXV MUMBAI DATED 08-08-2008. 2. THE ASSESSEE IS A PARTNERSHIP FIRM AND IS IN THE BUSINESS AS A BUILDER AND DEVELOPER. IT FILED ITS RETURN OF INCOME FOR THE AS SESSMENT YEAR 2005-06 ON 31-10- 2005 DECLARING TOTAL INCOME AT NIL. THE AO COMPLETE D THE ASSESSMENT U/S 143(3) ON 27-12-2007. WHILE DOING SO HE MADE AN ADDITION U/S 40(A)(IA) OF THE ACT ON 2 THE GROUND THAT THE ASSESSEE FAILED TO DEDUCT TDS A ND PAID THE SAME WITHIN TIME. HE FURTHER MADE DISALLOWANCES ON UNPROVED LIABILIT IES U/S 41(1) AND INTEREST EXPENSE DISALLOWANCE U/S 36(1)(III). ON APPEAL THE FIRST APPELLATE AUTHORITY DELETED THE ADDITION MADE U/S 41(1). AS FAR AS THE ADDITION MADE U/S 40(A)(IA) IS CONCERNED AND DISALLOWANCE OF INTEREST EXPENDITURE THE FIRST APPELLATE AUTHORITY CONFIRMED THE ADDITION. AGGRIEVED THE ASSESSEE IS BEFORE US DISP UTING THESE TWO ADDITIONS. 3. THE LEARNED COUNSEL FOR THE ASSESSEE MR. JITENDR A SANGAHVI SUBMITTED THAT GROUND NO. 1 TO 3 DEALS WITH THE DISALLOWANCES MADE U/S 40(A)(IA) OF THE ACT. HE REFERRED TO PAGE 5 OF THE ASSESSMENT ORDER AND DREW OUR ATTENTION TO THE FINDING THAT THE TDS DEDUCTED WAS NOT PAID WITHIN THE STATU TORY TIME LIMIT PRESCRIBED BY THE ACT. HE SUBMITTED THAT THE ASSESSEE DEBITS THE EXPENDITURE TO THE PROFIT AND LOSS ACCOUNT AND THEREAFTER CARRY FORWARDS THE SAME BY W AY OF WORK IN PROGRESS. HE SUBMITTED THAT THE ASSESSEE HAS BEEN OFFERING 15% O F THE EXPENDITURE INCURRED ON THE PROJECT BY THE ASSESSEE DURING THE YEAR AS NET PROFIT. HIS CASE IS THAT IF THE REVENUE DISALLOWS THE EXPENDITURE FOR WHATEVER REAS ON THEN THE SAME SHOULD BE REDUCED FROM THE WORK IN PROGRESS AND THE PROFIT OF FERED AT 15% OF THE NET EXPENDITURE COULD ALSO BE REDUCED FOR THE REASON TH AT THE EXPENDITURE CLAIMED DURING THE YEAR GETS REDUCED. HE SUBMITS THAT AS AN D WHEN TDS IS PAID THE EXPENDITURE SHOULD BE ALLOWED AND IT IS THAT YEAR T HAT 15% OF THE EXPENDITURE SHOULD BE CONSIDERED AS NET PROFIT AND THE WORK IN PROGRESS ACCORDINGLY INCREASED. 4. MR. SINGHVI FURTHER SUBMITTED THAT GROUND NO. 4 AND 5 PERTAINS TO THE DISALLOWANCE OF RS.6 20 379/-. HE PLEADED THAT THI S AMOUNT WAS TAKEN AS COST OF CONSTRUCTION AND HENCE WAS WORK IN PROGRESS. FOR TH E SAME REASONS CITED WHILE ARGUING GROUND NO. 1 TO 3 THE LEARNED COUNSEL SUBM ITTED THAT ADJUSTMENT IF ANY CAN BE MADE ONLY IN THE YEAR OF COMPUTATION OF PROF ITS FROM THE PROJECT. ON A QUERY FROM THE BENCH HE SUBMITTED THAT THE PROJECT HAS BE EN COMPLETED IN 2010-11. ON A 3 FURTHER QUERY HE SUBMITTED THAT THE ASSESSEE HAS NO T MADE ANY ADJUSTMENT TO THE TAXABLE INCOME IN THAT YEAR. HIS PRIMARY CONTENTION IS THAT THE INTEREST IS NOT DEBITED TO THE PROFIT AND LOSS ACCOUNT AND HENCE CA NNOT BE DISALLOWED. 5. COMING TO GROUND NO. 6 8&9 THE LEARNED COUNSEL SUBMITTED THAT HE IS NOT PRESSING THE SAME. 6. ON GROUND NO. 7 HE SUBMITTED THAT IT IS A REPET ITION OF THE EARLIER GROUNDS AND HENCE HE DOES NOT PRESS THE SAME. 7. THE LEARNED DR MR. D. SONGATE ON THE OTHER HAN D OPPOSED THE CONTENTION OF THE LEARNED COUNSELFOR THE ASSESSEE AND DREW TH E ATTENTION OF THE BENCH TO PARA 3 TO 3.4 OF THE CIT(APPEALS) ORDER. HE SUBMITTED T HAT THE EXPENSES CLAIMED BY THE ASSESSEE ARE REVENUE IN NATURE AND THEY ARE TO BE C LAIMED AGAINST THE INCOME OF THE PROJECT. HE SUBMITTED THAT THE ASSESSEES CLAIM THA T IT HAS CAPITALIZED THE EXPENDITURE IS INCORRECT. AS THE ASSESSEE HAS NOT D EDUCTED OR PAID TDS ON ARCHITECT FEES OF RS.11 02 000/- INTEREST OF RS.17 28 070/- BEFORE THE STIPULATED DATE THE QUESTION OF DELETING THE DISALLOWANCE MADE U/S 40(A )(IA) DOES NOT ARISE. ON THE ISSUE OF INTEREST DISALLOWANCE HE SUBMITTED THAT T HE ASSESSEE HAS NOT DISPUTED THE MERITS OF THE DISALLOWANCE AND HENCE THE GROUND SHO ULD BE DISMISSED. 8. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPE RS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITE D WE HOLD AS FOLLOWS. 9. THE ASSESSEE IN THIS CASE IS OFFERING TO TAX INC OME @ 15% OF THE EXPENDITURE INCURRED DURING THE YEAR. ONLY ON COMPLETION OF THE PROJECT THE INCOME AND EXPENDITURE WERE COMPARED AND THE DIFFERENCE BEING PROFITS/LOSS IS BROUGHT TO TAX AFTER REDUCING THE PROFITS THAT ARE ALREADY OFFERED TO TAX IN THE EARLIER YEARS. WHEN THIS IS THE METHOD OF ACCOUNTING ACCEPTED OVER THE YEARS AND WHEN IN THIS 4 ACCOUNTING YEAR ALSO THE SAME SYSTEM HAS BEEN ACCEP TED IN OUR HUMBLE OPINION IT WOULD NOT BE APPROPRIATE TO BRING TO TAX THE EXPE NDITURE ON WHICH TDS PROVISIONS ARE NOT FOLLOWED BY APPLYING SECTION 4 0(A)(IA) OF THE ACT. WHEN A PARTICULAR EXPENDITURE IS DISALLOWED CORRESPONDING LY THE WORK IN PROGRESS GETS REDUCED IN THE METHOD OF ACCOUNTING FOLLOWED BY TH E ASSESSEE. AS FAR AS DETERMINATION OF PROFITS ARE CONCERNED AS ALREADY STATED THE METHOD IS TO ESTIMATE THE NET PROFIT AT 15% OF EXPENDITURE INCURRED DURI NG THE YEAR. SO LOGICALLY IF THE EXPENDITURE ALLOWABLE DURING THE YEAR IS REDUCED T HEN 15% ESTIMATE ON SUCH EXPENDITURE WOULD GO TO REDUCE THE AMOUNT OF PROFIT . AS THE LEARNED COUNSEL HAS NOT PRESSED ON THIS ISSUE WE DO NOT DEAL WITH THE SAME FURTHER. SUFFICE TO SAY THAT IF COST OF CONSTRUCTION IS REDUCED DUE TO THE DISAL LOWANCE U/S 40(A)(IA) CORRESPONDINGLY WORK IN PROGRESS IS REDUCED AND NO ADDITION CAN BE MADE DURING THE YEAR. THE EFFECT OF DEDUCTION OF WORK IN PROGRE SS WOULD COME INTO PLAY ONLY IN THE YEAR OF COMPLETION OF THE PROJECT. IN VIEW OF T HE ABOVE DISCUSSION WE ALLOW GROUND NOS. 1 TO 3 OF THE ASSESSEE. THE AO SHALL EN SURE THAT THE REDUCED WORK IN PROGRESS IS ONLY CARRIED FORWARD AND ULTIMATE PROFI T IS CALCULATED ONLY BASED ON SUCH REDUCED WORK IN PROGRESS. 10. COMING TO GROUND NO. 4 AND 5 THE UNDISPUTED FA CT IS THAT THE INTEREST EXPENDITURE HAS NOT BEEN INCURRED ON THE PROJECT AS THE ASSESSEE HAD NOT UTILIZED THE BORROWED FUNDS FOR ASHIANA PROJECT. WHILE SO ALLOW ING THE SAME AS EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS DOES NOT ARISE . HERE ALSO IN VIEW OF THE SYSTEM OF ACCOUNTING FOLLOWED AS DETAILED BY US WH ILE DEALING GROUND NO. 1 TO 3 WE ALLOW THE PLEA OF THE ASSESSEE. THE AO IS DIRECT ED TO ENSURE THAT THE REDUCED 5 WORK IN PROGRESS IS CARRIED FORWARD DURING THE YEAR AND ULTIMATE PROFITS ARE CALCULATED BASED ON SUCH REDUCED WORK IN PROGRESS I N THE FUTURE YEARS. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DEC. 2010. SD/- SD/- (V. DURGA RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCO UNTANT MEMBER MUMBAI DATED: 3 RD DEC. 2010. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR E-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTRAR ITAT MUMBAI B ENCHES M UMBAI.