M/s Aditya Housing & Infrastructure Development Corporation P Ltd., Hyderabad V. Dy.CIT, Circle - 1(1), Hyderabad

ITA 1366/HYD/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7717 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 30-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: K A SAI PRASAD
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.1366/HYD/2014 ASSESSMENT YEAR 2010-2011 M/S. ADITYA HOUSING & INFRASTRUCTURE DEVELOPMENT CORPORATION P. LTD., HYDERABAD PAN AAFCA9790B VS. THE DCIT, CIRCLE 1(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. K.A. SAIPRASAD FOR REVENUE : MR. RAJAT MITRA DATE OF HEARING : 04.12.2014 DATE OF PRONOUNCEMENT : 29.12.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-II, HYDERABAD DATED 12.05.2014. THE ISSUE IN THIS APPEAL IS WITH REFERENCE TO DISALLOWANCE UN DER SECTION 40(A)(IA). 2. BRIEFLY STATED, ASSESSEE COMPANY IS ENGAGED IN CONSTRUCTION OF RESIDENTIAL COMPLEXES AND FILED RET URN OF INCOME FOR A.Y. 2010-2011 ADMITTING INCOME OF RS.1, 03,21,866 ON ADMITTED SALES OF RS.31.82 CRORES. IN THE ORDER UNDER SECTION 143(3) A.O. MADE ADDITIONS OF DISALLOWANCE UNDER SECTION 40(A)(IA) TO AN EXTENT OF RS.64,57,440 AND DISALLOWANCE OF RS. 5 LAKHS U/S 40(A)(III). THE MATTERS WERE CON TESTED BEFORE LD. CIT(A) UNSUCCESSFULLY. HENCE, THE PRESENT APPEA L. 2 ITA.NO.1366/HYD/2014 M/S. ADITYA HOUSING & INFRASTRUCTURE DEVELOPMENT CORPORATION PVT. LTD., HYDERABAD. 3. COMING TO THE FACTS OF DISALLOWANCE, ASSESSEE I S FOLLOWING PERCENTAGE/ PROJECT COMPLETION METHOD AND IS ACCOUNTING INCOMES AND EXPENDITURE ON PROPORTIONATE BASIS. ASSESSEE HAS SPENT AN AMOUNT OF RS.24,18,62,679 AS EXPENSES DURING THE CURRENT YEAR. THESE EXPENSES WERE ADDED TO OPENING WORK IN PROGRESS OF RS.1198.09 CRORES. ASSE SSEE HAD SHOWN SALES TO AN EXTENT OF RS.30.24 CRORES AND HAS SHOWN DIRECT EXPENSES AT RS.23.38 CRORES OUT OF WHICH, PR OJECT EXPENSES DEBITED TO P & L ACCOUNT, BEING COST OF SA LES WERE AT RS.26,15,44,749. ASSESSEE CARRIED OVER CLOSING WORK IN PROGRESS OF RS.1187.12 CRORES IN ITS BOOKS OF ACCOU NTS. DURING THE YEAR ASSESSEE PAID AN AMOUNT OF RS.66 CRORES AS AN INTEREST TO M/S. URBAN INFRASTRUCTURE VENTURE CAPIT AL FUND ON WHICH NO TDS WAS MADE. A.O. PROPOSED TO DISALLOW TH E ABOVE AMOUNT U/S 40(A)(IA). ASSESSEE EXPLAINED THAT THE E NTIRE AMOUNT CANNOT BE DISALLOWED AS ONLY AMOUNT DEBITED TO P & L ACCOUNT WAS ONLY 2.16% OF TOTAL EXPENDITURE. ASSESS EE EXPLAINED THAT OUT OF THE TOTAL PROJECT EXPENDITURE FROM OPENING WORK IN PROGRESS AS WELL AS ADDITION DURING THE YEAR ONLY A PROPORTIONATE AMOUNT WAS TRANSFERRED TO P & L ACCOUNT AS COST OF EXPENDITURE ON SALES MADE. THEREFORE, DI SALLOWANCE UNDER SECTION 40(A)(IA) CAN ONLY BE MADE AT 2.16% O F THE AMOUNT PAID DURING THE YEAR, WHICH ASSESSEE ITSELF HAS DISALLOWED IT IN THE COMPUTATION OF INCOME. IT WAS SUBMITTED THAT BALANCE AMOUNT OF 97.84% I.E., RS.64,57,440 AP PEARING AS CLOSING WORK IN PROGRESS UNDER CURRENT ASSETS AS IN VENTORY IN THE BALANCE SHEET DOES NOT CALL FOR ANY DISALLOWANC E. LIKE WISE, A.O. ALSO CONSIDERED AN AMOUNT OF RS. 5 LAKHS PAID TO M/S. MCH TOWARDS APPROVALS AND FEES ON FIRE CHARGES WHIC H WERE PROPOSED TO DISALLOW UNDER SECTION 40A(3). ASSESSEE S OBJECTIONS ON THIS ISSUE WERE ALSO SIMILAR. A.O. DI D NOT AGREE 3 ITA.NO.1366/HYD/2014 M/S. ADITYA HOUSING & INFRASTRUCTURE DEVELOPMENT CORPORATION PVT. LTD., HYDERABAD. AND MADE DISALLOWANCE OF BOTH AMOUNTS WHICH THE LD. CIT(A) CONFIRMED. 4. AT THE OUTSET IT WAS SUBMITTED THAT LD. CIT(A) WAS WRONG IN GIVING A FINDING THAT ASSESSEE DEBITED THE FULL AMOUNT OF RS.66 LAKHS TO P & L ACCOUNT BY NOTING SCHEDULE- N, WHICH IS NOT THE AMOUNT DEBITED TO P & L ACCOUNT, BUT THE TO TAL OF THE EXPENDITURE DURING THE YEAR SPENT ON THE PROJECT. I T WAS SUBMITTED THAT RS. 66 LAKHS WAS INTEREST ON LOANS W HICH WAS DEBITED TO COST OF PROJECT AND TAKEN IN THE TOTAL W ORK IN PROGRESS OUT OF WHICH COST OF SALES AT RS.26,15,44, 799 WERE TRANSFERRED TO P & L ACCOUNT WHICH WAS ONLY 2.16% O F THE TOTAL PROJECT COST. THUS ON FACTS, LD. CIT(A) GAVE A WRON G FINDING. 5. COMING TO THE ISSUE OF DISALLOWANCE, LD. COUNSE L RELIED IN ORDER OF COORDINATE BENCH OF ITAT IN ASSE SSEES OWN CASE FOR A.Y. 2009-10 IN ITA.959/HYD/2013 GIVEN IN THE CONTEXT OF REVENUE APPEAL WHEREIN, LD. CIT(A) HAS A LLOWED ASSESSEES CONTENTIONS IN EARLIER YEAR, WHICH WERE CONFIRMED BY ITAT. IT WAS SUBMITTED THAT SINCE ASSESSEE HAS NOT DEBITED THE FULL AMOUNT SPENT DURING THE YEAR TO P & L ACCOUNT (IN THAT YEAR ONLY 1.93% WAS CLAIMED AS DEDUCTIBLE EXPENDITU RE), LD. CIT(A) RESTRICTED THE DISALLOWANCE TO THAT AMOUNT A S CLAIMED BY ASSESSEE AND THAT ORDER WAS CONFIRMED BY ITAT ON THE SAME PRINCIPLE. 6. IT WAS NOTICED THAT ASSESSEE HAS SPENT AMO UNT OF RS.18.11 CRORES IN A.Y. 2009-2010 AND DISALLOWED AN AMOUNT OF 1.93% BEING AMOUNT CLAIMED IN P & L ACCOUNT UNDE R SECTION 40(A)(IA) IN THAT YEAR. WHEN IT WAS POINTED OUT BY BENCH THAT THE TOTAL DISALLOWANCE DURING THE YEAR AT 2.16% SHO ULD HAVE BEEN CLAIMED ON THE PROPORTIONATE AMOUNT ON WHICH T DS WAS 4 ITA.NO.1366/HYD/2014 M/S. ADITYA HOUSING & INFRASTRUCTURE DEVELOPMENT CORPORATION PVT. LTD., HYDERABAD. NOT MADE AT RS.18.11 CRORES OF LAST YEAR PLUS THE A MOUNT PAID DURING THE YEAR WITHOUT TDS ON THE SAME PRINCIPLE, THE LD. COUNSEL ADMITTED THAT THIS AMOUNT ALSO CALLS FOR PR OPORTIONATE DISALLOWANCE AND HE HAS NO OBJECTION IF THE MATTERS ARE RESTORED TO THE FILE OF A.O FOR CORRECT DISALLOWANC E. ASSESSEE FURNISHED THE FOLLOWING WORKING QUANTIFYING THE DIS ALLOWANCE. AMOUNT ATTRACTING THE PROVISIONS OF SECS.40A(IA) AND 40A(3) AS PER ASST. ORDER. DISALLOWANCE MADE BY A.O./FAA DISALLOWABLE IN A.Y. 2010-11 @ 2.1557% A.Y. 2008-09 A.Y. 2009-10 A.Y. 2010-11. 46,40,943 A.Y. 2008-09 4,640,943 100% U/S.143(3) NIL NIL 100,045 18,94,76,147 A.Y. 2009-10 - 3,656,890 @ 1.93% U/S.250 NIL 4,005,706 71,00,000 (60,00,000+5,00,000) A.Y. 2010-11 7,100,000 U/S. 143(3) & 250 153,055 TOTAL 4,258,806 LESS: DISALLOWANCE AS PER ROI : A.Y. 2010-11 BALANCE 142,276 4,116,530 7. LEARNED D.R. HOWEVER, FAIRLY ADMITTED THAT THE ISSUE IS COVERED AGAINST THE REVENUE BY THE ORDERS OF ITAT IN A.Y. 2009-2010 (SUPRA). 8. AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE OF THE OPINION THAT ORDER OF LD. CIT(A) CANNOT BE UPHE LD. AS FAR AS THE ISSUE OF PROPORTIONATE DISALLOWANCE AS CLAIMED BY ASSESSEE IS CONCERNED, THIS ISSUE IS HELD IN FAVOUR OF ASSES SEE BY THE COORDINATE B BENCH OF THE HYDERABAD TRIBUNAL IN ITA.NO.959/HYD/2013 DATED 28 TH MAY, 2014 ON THE PRINCIPLE THAT ONLY DISALLOWANCE CAN BE MADE OUT OF THE AMOUN TS 5 ITA.NO.1366/HYD/2014 M/S. ADITYA HOUSING & INFRASTRUCTURE DEVELOPMENT CORPORATION PVT. LTD., HYDERABAD. CLAIMED IN THE P & L ACCOUNT. THE COORDINATE BENCH DECISION IN A.Y. 2009-2010 IS AS UNDER : 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL ON RECORD. IN THIS CASE AS SEEN FROM THE PROFIT AN D LOSS A/C., THE ASSESSEE HAD DEBITED AN EXPENDITURE OF RS . 23,38,41,519 OUT OF TOTAL EXPENDITURE OF RS. 1212,47,48,985 AND CARRIED AN AMOUNT OF RS. 1189,09,04,466 AS WORK-IN-PROGRESS IN BALANCE SHEET . IN OTHER WORDS, THE ASSESSEE HAS NOT CLAIMED THIS AMOU NT OF RS. 16,05,80,987 AS AN EXPENDITURE IN THE PROFIT AN D LOSS A/C. IN OUR HUMBLE OPINION, UNLESS AND UNTIL THE A SSESSEE CLAIMED THIS AS AN EXPENDITURE WHILE COMPUTING THE INCOME, THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT CANNOT BE INVOKED. 17. THE CIT(A) PLACED RELIANCE ON THE DECISION OF THE I TAT, HYDERABAD IN THE CASE OF ACIT VS. GODAVARI DEVELOPE RS IN ITA NO. 918/HYD/2012 DATED 31.10.2012. IN THIS CAS E THE TRIBUNAL FOLLOWED THE DECISION OF THE TRIBUNAL MUMB AI 'J' BENCH IN THE CASE OF ITO VS. SAVALA ASSOCIATES (CIT ED SUPRA) WHERE IT HAS BEEN HELD THAT 'IN PRINCIPLE, ONE AGREES WITH THE ABOVE VIEW OF REVENUE THAT IN CASE OF 'COMPLETED CONTRACT METHOD' THE AO IS EMPOWERED TO EXAMINE THE EXPENDITURES INCURRED DURING THE YEAR WHICH INCREASES THE OPENIN G WORK-IN-PROGRESS OR ADDITION IN WORK-IN-PROGRESS. B UT ONE DOES NOT AGREE WITH THE VIEW OF REVENUE THAT ADDITION IS TO BE MADE IN TOTAL INCOME, IF SOME EXPENDITURE WERE FOUND NOT ALLOWABLE. THE CORRECT PROCEDURE IN 'COMPLETED CONTRACT METHOD' IS THAT INSTEAD OF MAKING ADDITION, THE AO SHOULD CORRECT T HE AMOUNT OF WORK-IN-PROGRESS BY REDUCING OR ENHANCING WORK- IN-PROGRESS AS THE CASE MAY BE. SUCH CORRECTE D WIP WILL BE FINALLY CONSIDERED IN P&L A/C /CONTRACT ACCOUNT FOR THE YEAR IN WHICH WORK IS COMPLETED. TH E RESULT OF CALCULATION OF CORRECT PROFIT IN CASE OF 'COMPLETED CONTRACT METHOD' COULD BE ATTAINED BY TH IS PROCEDURE. IN THE CASE UNDER CONSIDERATION, THE AO MADE ADDITION IN ALL THE PROJECTS INCLUDING INCOMPL ETE PROJECTS, WHICH IS NOT WARRANTED.' 6 ITA.NO.1366/HYD/2014 M/S. ADITYA HOUSING & INFRASTRUCTURE DEVELOPMENT CORPORATION PVT. LTD., HYDERABAD. 18. THE CIT(A) ALSO PLACED R ELIANCE ON THE DECISION OF ITAT HYDERABAD IN THE CASE OF M/S. NAR N E CONSTRUCTIONS PVT. LTD. IN ITA N OS . 1462 & 1463/HYD/2011 DATED 25.01.2012 WHERE IT HAS BEEN HELD THAT : 'WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE CONTENTION OF THE ASSESSEE IS THAT THIS ITEM HAS NO T BEEN DEBITED TO PROFIT & LOSS A/C AND THIS HAS BEEN SHOWN IN THE BALANCE-SHEET AND IT CANNOT BE CONSIDERED FOR ALLOWANCE OR DISALLOWANCES. WE FIND FORCE IN THE CONTENTION OF THE ASSESSEE'S COUNSEL T HAT UNLESS THE ASSESSEE CLAIMS THIS ITEM AS EXPENDITURE , THE ASSESSING OFFICER CANNOT ALLOW OR DISALLOW THE SAME . IN THE CIRCUMSTANCES, WE SET ASIDE THIS ISSUE TO THE F ILE OF THE ASSESSING OFFICER TO EXAMINE WHETHER THIS IS AN EXPENDITURE CLAIMED BY THE ASSESSEE IN THE PROFIT & LOSS A/C OR SHOWN AS AN ITEM IN THE BALANCE- SHEET. IN THE EVENT, IF IT IS CLAIMED AS AN EXPENDITURE, THE ASSESSING OFFICER COULD DISTURB THE SAME AND DISALL OW AN EXPENDITURE CLAIMED IN THE P & L A/C TO THE EXTENT OF 10%, WHICH, IN OUR OPINION, IS REASONABLE. ON TH E OTHER HAND, IF IT IS BALANCE-SHEET ITEM, THE ASSESS ING OFFICER IS PRECLUDED FROM DOING SO.' 19. THE VIEW OF THE CIT(A) IS IN CONFORMITY WITH THE AB OVE DECISIONS OF THE TRIBUNAL. 20. FURTHER, THE SAME VIEW WAS TAKEN BY THE CO-ORDINATE BENCH IN THE CASE OF SP REAL ESTATE DEVELOPERS PVT. LTD. (CITED SUPRA) AND ALSO EGWOOD INDUSTRIES PVT. LTD. (CITED SUPRA). 21. THE LEARNED DR, ON THE OTHER HAND, TRIED TO DISTING UISH THE ABOVE JUDGEMENTS AND DREW OUR ATTENTION TO THE JUDG EMENT OF SUPREME COURT IN THE CASE OF ATTAR SINGH GURMUKH SINGH (CITED SUPRA). THE JUDGEMENT RELIED ON THE LEARNED DR IS ON THE APPLICABILITY OF PROVISIONS OF SECTION 40A(3) O F THE ACT IN RESPECT OF PAYMENT MADE TO A PERSON IN A DAY OTHERW ISE THAN BY A ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT EXCEEDING RS. 20,000, NO DEDUCTION CAN BE MADE IN RESPECT OF SUCH EXPENDITUR E. ON THE OTHER HAND, SECTION 40(A)(IA) IS WITH REGARD TO 7 ITA.NO.1366/HYD/2014 M/S. ADITYA HOUSING & INFRASTRUCTURE DEVELOPMENT CORPORATION PVT. LTD., HYDERABAD. DISALLOWANCE IN RESPECT OF PAYMENTS WHERE THE ASSES SEE FAILED TO DEDUCT TDS. THESE TWO SECTIONS ARE NOT P ARA MATERIA. BEING SO, WE ARE INCLINED TO DECIDE THE I SSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9. THEREFORE, ON PRINCIPLE, WE AGREE WITH ASSESSEE S CONTENTIONS THAT ONLY PROPORTIONATE AMOUNT CLAIMED IN P & L ACCOUNT HAS TO BE DISALLOWED. 10. NOW COMING TO THE ISSUE OF QUANTUM FOR DISALLOWANCE AS RIGHTLY ADMITTED BY LD. COUNSEL, TH E AMOUNTS ADDED TO THE WORK IN PROGRESS IN EARLIER YEAR WITHO UT TDS WERE ALSO PART OF THE PROJECT EXPENSES DEBITED TO P & L ACCOUNT DURING THE YEAR. THEREFORE, WHATEVER IS THE AMOUNT INCLUDED IN THE TOTAL PROJECT COST WITHOUT MAKING TDS UP TO THE END OF THE YEAR SHOULD BE CONSIDERED FOR DISALLOWANCE PROPORTI ONATELY AT 2.16%. TOTAL AMOUNT THAT SHOULD BE CONSIDERED FOR PROPORTIONATE DISALLOWANCE UNDER SECTION 40(A)(IA), BEING THE AMOUNT INCLUDED IN THE PROJECT COST WAS SUBMITTED B Y ASSESSEE AS EXTRACTED ABOVE. 11. ASSESSING OFFICER IS DIRECTED TO EXAMINE THE S AME AND THEN DISALLOW THE PROPORTIONATE 2.16% UNDER SEC TION 40(A)(IA) AS IN EARLIER YEAR AS PER DIRECTIONS OF I TAT ON THIS ISSUE. THIS GROUND OF ASSESSEE IS PARTLY ALLOWED FO R STATISTICAL PURPOSES. 12. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. 8 ITA.NO.1366/HYD/2014 M/S. ADITYA HOUSING & INFRASTRUCTURE DEVELOPMENT CORPORATION PVT. LTD., HYDERABAD. ORDER PRONOUNCED IN THE OPEN COURT ON 29.12.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 29 TH DECEMBER, 2014 VBP/- COPY TO 1. M/S. ADITYA HOUSING & INFRASTRUCTURE DEVELOPMENT CORPORATION P. LTD., HYDERABAD, C/O. CH. PARTHASARA THY & CO., 1-1-298/2/B/3, 1 ST FLOOR, SOWBHAGYA AVENUE, STREET NO.1, ASHOKNAGAR, HYDERABAD 500 020. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1), HYDERABAD. 3. CIT(A)-II, HYDERABAD 4. CIT-I, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD.