The ACIT, Mehsana Circle,, Mehsana v. Tirupati Sarjan Ltd.,, Mehsana

ITA 652/AHD/2006 | 2003-2004
Pronouncement Date: 23-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 65220514 RSA 2006
Assessee PAN AAACT7015M
Bench Ahmedabad
Appeal Number ITA 652/AHD/2006
Duration Of Justice 4 year(s) 1 month(s) 11 day(s)
Appellant The ACIT, Mehsana Circle,, Mehsana
Respondent Tirupati Sarjan Ltd.,, Mehsana
Appeal Type Income Tax Appeal
Pronouncement Date 23-04-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 23-04-2010
Date Of Final Hearing 30-03-2010
Next Hearing Date 30-03-2010
Assessment Year 2003-2004
Appeal Filed On 13-03-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI G.D.AGRAWAL VICE-PRESIDENT (AZ) AND SHRI T.K.SHARMA JUDICIAL MEMBER AND DATE OF HEARING : 30/03/2010 DRAFTED ON: 31/03 /2010 ITA NO.652/AHD/2006 ASSESSMENT YEAR : 2003-04 THE ACIT MEHSANA CIRCLE MEHSANA VS. TIRUPATI SARJAN LTD. M.K. PATEL MARKET KANSA CHAR RASTA VISNAGAR PAN/GIR NO. : AAACT 7015 M (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI C.K. MISHRA SR.DR RESPONDENT BY: SHRI S.V. AGRAWAL O R D E R PER SHRI T.K.SHARMA JUDICIAL MEMBER : THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 07/12/2005 OF THE LEARNED CIT(APPEALS)-XXI AHMEDA BAD FOR ASSESSMENT YEAR 2003-04 ON THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING ADDITION OF RS.2 05 560/- MADE BY THE ASSESSING OFF ICER U/S.40A(3) OF THE I.T. ACT. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN HOL DING THAT DEDUCTION U/S.80-IB IS ALLOWABLE TO THE ASSESSEE. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DEL ETING DISALLOWANCE OF INTEREST EXPENDITURE OF RS.1 50 000 /- MADE BY THE A.O. U/S.14A OF THE I.T. ACT. ITA NO.652/AHD/2006 THE ACIT VS. TIRUPATI SARJAN LTD. ASST.YEAR 2003-04 - 2 - 2. GROUND NO.1 IS AGAINST DELETION OF ADDITION OF R S.2 05 560/- MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS CONTAINED IN SECTION 40A(3) OF THE I.T. ACT 1961. IN THE ASSESSMENT O RDER THE ASSESSING OFFICER MADE DISALLOWANCE @ 20% ON PAYMENT IN CASH MADE BY THE ASSESSEE AMOUNTING TO RS.10 27 800/- FOR PURCHASE O F LAND AT ITS SITE AT VISNAGAR. THE LAND IN QUESTION WAS A STOCK-IN-TRA DE. 3. ON APPEAL BEFORE THE LEARNED CIT(APPEALS) THE A SSESSEE CONTENDED THAT CASH PAYMENT HAS BEEN MADE BY THE AS SESSEE BECAUSE SELLER OF THE LAND PUT THE CONDITION OF CASH PAYMEN T BEFORE SIGNING THE SALE-DEED BEFORE THE SUB-REGISTRAR. THIS WAS CONFI RMED BY THE FARMERS WHO HAVE SOLD THEIR LAND TO THE ASSESSEE. BEFORE THE LEARNED CIT(APPEALS) IT WAS ALSO CONTENDED THAT THE ASSESS ING OFFICER HAS NOT BROUGHT ON RECORD THE FACT THAT ANY OF THESE PAYEE HAD BANK ACCOUNT IN ANY OF THE BANKS OF THEIR LOCALITY. ACCEPTING THE EXPLANATION OF ASSESSEE THE LEARNED CIT(APPEALS) DELETED THE DISA LLOWANCE. AGGRIEVED THE REVENUE IN APPEAL. 4. BEFORE US SHRI C.K. MISHRA LEARNED DEPARTMENTA L REPRESENTATIVE APPEARED FOR THE REVENUE CONTENDED THAT THE CASE OF THE ASSESSEE IS NOT COVERED BY ANY OF THE EXCEPTION PROVIDED IN RULE 6D D OF THE IT RULES 1962 THEREFORE DISALLOWANCE OF RS.2 95 560/- MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS CONTAINED IN SEC TION 40A(3) OF THE I.T. ACT 1961 BE RESTORED. ITA NO.652/AHD/2006 THE ACIT VS. TIRUPATI SARJAN LTD. ASST.YEAR 2003-04 - 3 - 5. ON THE OTHER HAND SHRI S.V. AGRAWAL LD. COUNS EL FOR THE ASSESSEE SUPPORTED THE ORDERS OF THE LEARNED CIT(APPEALS). THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT LAND WAS HELD AS A ST OCK-IN-TRADE. NO LAND WAS SOLD BY THE ASSESSEE IN THE PREVIOUS YEAR RELEV ANT TO ASSESSMENT YEAR UNDER APPEAL. THE CASE OF THE ASSESSEE IS COVERED BY CLAUSE(E) OF RULE 6DD OF IT RULES 1962 THEREFORE VIEW TAKEN BY THE LEARNED CIT(APPEALS) BE UPHELD. 6. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. IT IS PERTINENT TO NOTE THAT THE HON'BLE SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SI NGH VS. ITO (1991) 191 ITR 667 (SC) HAS HELD THAT THE DISALLOWANCE U/ S.40A(3) OF THE I.T. ACT 1961 IN RESPECT OF PAYMENT MADE FOR PURCHASE O F GOODS WHICH ARE HELD AS STOCK-IN-TRADE. THE CASE OF THE ASSESSEE IS NOT COVERED BY RULE 6DD(E) OF THE I.T. ACT 1961 BECAUSE THE ASSESSEE H AS NOT MADE THE PAYMENT FOR PURCHASE OF AGRICULTURAL OR FOREST PROD UCE OR THE PRODUCE OF ANIMAL HUSBANDRY OR OTHER PRODUCTS MENTIONED IN CL AUSE(E) OF RULE 6DD OF THE I.T. RULES 1962. WE THEREFORE HOLD THAT THE LEARNED CIT(APPEALS) INCORRECTLY DELETED THE DISALLOWANCE. THEREFORE DISALLOWANCE OF RS.2 05 560/- U/S.40A(3) MADE BY TH E ASSESSING OFFICER IS RESTORED. THIS GROUND OF APPEAL IS ALLOWED. 7. GROUND NO.2 IS AGAINST HOLDING THAT DEDUCTION U/ S.80-IB OF THE I.T. ACT 1961 IS ALLOWABLE TO THE ASSESSEE. THE BRIEF FACTS RELATING TO CONTROVERSY INVOLVED IN THIS GROUND OF REVENUES A PPEAL ARE THAT IN THE ASSESSMENT ORDER THE ASSESSING OFFICER RESTRICTED THE ASSESSEES CLAIM OF ITA NO.652/AHD/2006 THE ACIT VS. TIRUPATI SARJAN LTD. ASST.YEAR 2003-04 - 4 - DEDUCTION U/S.80-IB TO RS.10 61 563/-. THE ASSESSI NG OFFICER ALLOWED THE PROPORTIONATE DEDUCTION BY CALCULATING ELIGIBLE TURNOVER U/S.80-IB AT 41% OF TOTAL TURNOVER. 8. ON APPEAL BEFORE THE LEARNED CIT(APPEALS) IT WA S CONTENDED - (I) THAT SEPARATE BOOKS MAINTAINED BY SEPARATE BR ANCH AND SEPARATE SITES IS A SEPARATE PROFIT CENTRE WITH SIT E-WISE DETAILS OF PURCHASE EXPENSES SALES CERTIFIED AND UNCERTI FIED WORK ETC. (II) THAT COMPANY ADOPTED THE ACCOUNTING STANDARD 7 VI Z. CONSTRUCTION CONTRACTS WHEREIN THE PROFIT IS BOOKE D BASED ON PERCENTAGE OF COMPLETION METHOD. (III) THAT THE ACCOUNTING POLICIES ADOPTED BY THE COMPAN Y FOR VALUATION OF INVENTORY AND INCOME RECOGNITION HAS B EEN GIVEN IN SCHEDULE-12 OF THE BALANCE-SHEET AND PROFI T AND LOSS ACCOUNT. 9. AFTER CONSIDERING THE AFORESAID SUBMISSIONS IN THE IMPUGNED ORDER THE LEARNED CIT(APPEALS) HELD THAT WHOLE AMO UNT OF RS.20 23 065/- CLAIMED AS DEDUCTION U/S.80-IB OF THE I.T. ACT 1961 IS ALLOWABLE. THE REASONS GIVEN BY THE LEARNED CIT(AP PEALS) AS CONTAINED IN PAGE NOS.9 & 10 OF HIS ORDER ARE AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE FACTS OF THE CASE. AS PER THE DISCUSSION BY T HE ASSESSING OFFICER HE HAS REDUCED THE DEDUCTION U/S.80-IB PRO PORTIONATELY TAKING THE BASE OF SALES. I FIND THAT THE MAIN CO NTENTION OF THE APPELLANT IS THAT IT IS BROKING PROFIT ON THE BASIS OF INCREMENTAL WORK COMPLETED DURING THE COURSE OF PREVIOUS YEAR. FOR THIS THE APPELLANT HAS FILED A CHART FOR THE WORK OF PROFIT S OF VARIOUS ITA NO.652/AHD/2006 THE ACIT VS. TIRUPATI SARJAN LTD. ASST.YEAR 2003-04 - 5 - PROJECTS UNDERTAKEN BY THE APPELLANT-COMPANY. I F IND FROM THE WORKING THAT SALES OF VASANT VIHAR SITE IS RS.1 21 300/- WHEREAS THE GROSS PROFIT SHOWN IS RS.2 59 351.50 AND IT IS GENERALLY ACCEPTABLE THAT GROSS PROFIT CANNOT BE MORE THAN SA LES. BUT IF WE LOOK AT THE CERTIFIED WORK OF THE SAME SITE AS PER COL.NO.16 THE SAME IS RS.22 50 000/- MEANING THEREBY THE WORK HA S BEEN CARRIED OUT AT SITE BUT THE SALE IS NOT BOOKED BUT TO BOOK THE PROFIT OF SITE WHATEVER THE WORK HAS BEEN COMPLETED HAS BEEN TAKEN AS A BASIS. HENCE THE GROSS PROFIT IS RS.2 59 351.50. AGAIN IF WE LOOK AT SITE NO.7 & 12 OF OTHER SITES IN CASE OF TIRUPAT I TOWNSHIP PATAN EVEN THOUGH THERE IS A SALES OF RS.25.96 LAK HS THE GROSS PROFIT IS NIL BECAUSE THE MAJOR WORK IN THIS SITE HAS BEEN CARRIED OUT IN EARLIER YEAR AND THE PROFIT HAS BEEN BOOKED IN EARLIER YEAR NO ADDITIONAL WORK HAS BEEN CARRIED OUT DURING THE YEAR IN THIS SITE. FROM THE SITE NO.12 TIRUPATI MARKET SIDHP UR IT IS APPARENT THAT EVEN THOUGH THERE IS NO SALES THE GROSS PROFI T IS RS.7 22 660.40 BECAUSE THE CERTIFIED WORK AT THE EN D OF THE YEAR IS RS.72.50 LAKHS. FROM THIS THE CLAIM OF THE APPELLANT THAT THE PROFI T IS WORKED OUT ON THE BASIS OF INCREMENTAL WORK DONE ON RESPECTIVE SITES/PROJECTS IS FOUND CORRECT. THIS METHOD OF WORKING OUT THE PROFIT ON THE BASIS OF INCREMENTAL WORK DONE BY THE PAP HAS BEEN FOLLOWED BY THE APPELLANT CONSISTENTLY BEFORE THE CURRENT YEAR AS WELL AS IN THE SUBSEQUENT YEAR. I THEREFORE HOLD THAT THE DEDUC TION OF PROFIT CLAIMED EXEMPT U/S.80-IB BY THE APPELLANT IS CORREC TLY MADE AND IT IS NOT TO BE RESTRICTED PROPORTIONATELY ON THE BASI S OF SALES AS DONE BY THE ASSESSING OFFICER. THEREFORE THE WHOLE OF THE AMOUNT OF RS.20 23 065/- CLAIMED AS DEDUCTION U/S.80-IB BY TH E APPELLANT IS HELD ALLOWABLE. 10. AGGRIEVED BY THE ORDER OF THE LD.CIT(APPEALS) THE REVENUE IS IN APPEAL BEFORE US. 11. AT THE TIME OF HEARING SHRI C.K. MISHRA LEAR NED DEPARTMENTAL REPRESENTATIVE APPEARED FOR THE REVENUE AND CONTEND ED THAT ASSESSEE ITA NO.652/AHD/2006 THE ACIT VS. TIRUPATI SARJAN LTD. ASST.YEAR 2003-04 - 6 - CARRIED OUT CONSTRUCTION BUSINESS OF RESIDENTIAL UN IT/COMPLEX WHICH IS ELIGIBLE FOR DEDUCTION U/S.80-IB OF THE I.T. ACT 1 961. HOWEVER ASSESSEE IS ALSO DOING INELIGIBLE CONSTRUCTION WORK. THERE FORE TO WORK OUT THE CORRECT AMOUNT OF ADMISSIBLE U/S.80-IB OF THE I.T. ACT 1961 THE ASSESSING OFFICER LEGALLY AND FACTUALLY CORRECT IN HOLDING THAT ELIGIBLE TURNOVER U/S.80-IB OF THE I.T. ACT 1961 IS 41% OF TOTAL TURNOVER. ON THIS BASIS HE WORKED OUT THE DEDUCTION U/S.80-IB OF THE I.T. ACT 1961 OF RS.9 50 697/-. THEREFORE THE ORDER OF THE LEARNE D CIT(APPEALS) ON THIS ISSUE BE SET ASIDE AND THAT OF ASSESSING OFFICER BE RESTORED. 12. ON THE OTHER HAND ON BEHALF OF THE ASSESSEE S HRI S.V. AGRAWAL LD. COUNSEL FOR THE ASSESSEE APPEARED WHO SUPPORTED THE ORDER OF THE LEARNED CIT(APPEALS). HE REITERATED THE SUBMISSION S AS WERE MADE BEFORE THE LEARNED CIT(APPEALS) AND CONTENDED THAT AFTER APPRECIATING ALL THE MATERIAL PLACED BEFORE THE ASSESSING OFFICE R THE LEARNED CIT(APPEALS) TOOK THE VIEW THAT ASSESSEE IS ENTITLE D TO DEDUCTION U/S.80-IB OF THE I.T. ACT 1961 AMOUNTING TO RS.20 23 065/- AS CLAIMED IN THE RETURN OF INCOME. THEREFORE THE ORDER OF T HE LEARNED CIT(APPEALS) ON THIS ISSUE BE UPHELD. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS WORKED OUT THE DED UCTION U/S.80-IB OF THE I.T. ACT 1961 I.E. THE PROPORTION WHICH IS TH E ELIGIBLE CONSTRUCTION TURNOVER BEARS WITH THE TOTAL TURNOVER WHICH ACCORD ING TO ASSESSING OFFICER IS 41%. IN THE ASSESSMENT ORDER THE ASSE SSING OFFICER HAS NOT ITA NO.652/AHD/2006 THE ACIT VS. TIRUPATI SARJAN LTD. ASST.YEAR 2003-04 - 7 - GIVEN ANY REASON FOR APPLYING THE SAID FORMULA WHEN ASSESSEE HAS MAINTAINED SEPARATE BOOKS OF ACCOUNT AND NO DEFECTS /DISCREPANCY IS POINTED OUT BY THE ASSESSING OFFICER. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE VIEW THAT THE LEARNED CIT(APPEALS) HAS GIVEN COGENT REASON FOR HO LDING THAT ASSESSEE IS ENTITLED TO DEDUCTION OF RS.20 23 065/- U/S.80- IB OF THE I.T. ACT 1961 AS DEDUCTION IN THE RETURN OF INCOME. WE THERE FORE INCLINE TO UPHOLD THE ORDER OF THE LEARNED CIT(APPEALS). THEREFORE THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 14. LAST GROUND OF APPEAL IS AGAINST DELETION OF AD DITION OF RS.1 50 000/- WHICH WAS MADE BY THE ASSESSING OFFIC ER U/S.14A OF THE I.T. ACT 1961. IN THE ASSESSMENT ORDER THE ASSES SING OFFICER DISALLOWED RS.1 50 000/- OUT OF INTEREST PAID ON CAPITAL WHICH IS BORROWED FOR MAKING THE INVESTMENT IN THE PARTNERSHIP-FIRM. AC CORDING TO ASSESSING OFFICER THE INVESTMENT MADE IN PARTNERSHIP-FIRM IS TO BE CONSIDERED PARTLY FOR EARNING OF PROFIT OF SHARE AS WELL. O N APPEAL THE LEARNED CIT(APPEALS) DELETED THE DISALLOWANCE ON TH E GROUND THAT IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER APP EAL THE ASSESSEE HAS NOT EARNED ANY INTEREST INCOME. AGGRIEVED REVENUE IS IN APPEAL. 15. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASS ESSEE RELYING ON THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF C IT VS. RAJENDRA PRASAD MOODY (1978) 115 ITR 519 (SC) SUBMITTED THA T THE SHARES WHICH WERE PURCHASED FROM MONEY BORROWED ON INTERES T DID NOT YIELD ANY DIVIDEND THEREFORE THE ENTIRE INTEREST EXPE NDITURE IS ALLOWABLE. ON ITA NO.652/AHD/2006 THE ACIT VS. TIRUPATI SARJAN LTD. ASST.YEAR 2003-04 - 8 - THIS BASIS HE CONTENDED THAT EVEN IF THE ENTIRE IN COME IS EXEMPT THE INTEREST PAID ON MONEY BORROWED FOR MAKING INVESTM ENT IN THE PARTNERSHIP-FIRM CANNOT BE DISALLOWED. 16. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REP RESENTATIVE CONTENDED THAT SINCE THE INCOME IS EXEMPT DISALLOW ANCE CAN BE MADE U/S.14A OF THE I.T. ACT 1961. FURTHER MERELY TH ERE IS NO INCOME WHICH IS CLAIMED EXEMPT IT CANNOT BE SAID THAT NO DISALL OWANCE CAN BE MADE. FOR THIS LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE DECISION OF ITAT DELHI (SPECIAL BENCH) IN THE CASE OF CHEMINVE ST LTD. VS. ITO (2009) 317 ITR 86 (AT)(DELHI)[SB]. 17. HAVING HEARD BOTH THE SIDES WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE ITAT DELHI S PECIAL BENCH IN THE CASE OF CHEMINVEST LTD. VS. ITO (SUPRA) HELD THA T DISALLOWANCE U/S.14A CAN BE MADE IN A YEAR IN WHICH EXEMPT INCOME IS EAR NED OR RECEIVED BY THE ASSESSEE. THE ITAT MUMBAI BENCH IN THE CASE OF DHARAMSINGH M. POPAL VS. ACIT (2009) 31 DTR 295 (MUMBAI) [TRIB] HE LD PARTNERSHIP FIRM BEING A SEPARATE ASSESSABLE ENTITY FOR THE PU RPOSE OF INCOME TAX ACT. INCOME CHARGED IN THE HANDS OF PARTNERSHIP FI RM CANNOT BE TREATED AS NON-EXEMPT INCOME IN THE HANDS OF SUCH FIRM AND THEREFORE PROVISIONS OF S.14A ARE APPLICABLE IN COMPUTING THE TOTAL INC OME OF SUCH PARTNER IN RESPECT OF HIS SHARE IN PROFITS OF THE FIRM. ASSE SSEE PARTNER HAVING RECEIVED SALARY FROM THE PARTNERSHIP FRIM BESIDES S HARE OF PROFIT DISALLOWANCE U/S.14A HAS TO BE WORKED OUT AS PER TH E PROVISONS OF RULE 8D SAME BEING RETROSPECTIVE. WE THEREFORE HOLD THAT THE LEARNED ITA NO.652/AHD/2006 THE ACIT VS. TIRUPATI SARJAN LTD. ASST.YEAR 2003-04 - 9 - CIT(APPEALS) CLEARLY ERRED IN DELETING THE DISALLOW ANCE OF RS.1 50 000/- MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORD ER. THIS DISALLOWANCE IS ACCORDINGLY RESTORED. THUS THI S GROUND OF REVENUES APPEAL IS ALLOWED. 18. IN THE RESULT THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 23.04.2010. SD/- SD/- ( G.D.AGRAWAL ) ( T.K.SHARMA ) VICE PRESIDENT (AZ) JUDICIAL MEMBER AHMEDABAD; DATED 23 / 04 /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)-XXI AHMEDABAD 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD