M/s.Abad builders P.Ltd, Cochin V. ACIT), Cochin

ITA 140/COCH/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69035 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 13-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2012
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: P K SASIDHARAN
• Keywords: Revised return
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 140/COCH/2012 ASSESSMENT YEAR : 2007-08 M/S. ABAD BUILDERS (P) LTD., ABAD PLAZA BUILDING, M.G.ROAD, KOCHI-682 035. [PAN: AAECA 2661C] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), RANGE-1, KOCHI. (ASSESSEE -APPELLANT) (REVENUE-RESPONDEN T) ASSESSEE BY SHRI P.K. SASIDHARAN, CA REVENUE BY SHRI K.K. JOHN, SR. DR DATE OF HEARING 13/08/2013 DATE OF PRONOUNCEMENT 06/11/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 12-04-2012 PASSED BY THE LD. CIT(A)-II, KOCHI AND IT RELATES T O THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE IS ASSAILING THE DECISION OF THE LD . CIT(A) IN CONFIRMING THE ADDITION OF RS. 1,47,91,477/- MADE BY THE ASSESSING OFFICER U/S. 40(A)(IA) OF THE ACT. 3. THE ASSESSEE-COMPANY IS ENGAGED IN CONSTRUCTION BUSINESS. THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSI DERATION DECLARING A TOTAL INCOME OF RS. 5.64 CRORES. THE ASSESSING OFFICER COMPLETED T HE ASSESSMENT BY DETERMINING THE TOTAL INCOME AT RS. 7.04 CRORES BY MAKING VARIOUS A DDITIONS, WHICH INCLUDED THE ADDITION MADE BY THE ASSESSING OFFICER U/S. 40(A)(I A) OF THE ACT ( MENTIONED AS 40(A) IN THE ASSESSMENT ORDER) OF SUNDRY CREDITORS BALANCE O F RS. 1,47,91,477/-. IT IS PERTINENT TO NOTE THAT THE ASSESSING OFFICER MADE THIS ADDITI ON WITHOUT MAKING ANY DISCUSSION IN I.T.A. NO.140 /COCH/2012 2 THE BODY OF THE ASSESSMENT ORDER. HENCE, DURING TH E COURSE OF APPELLATE PROCEEDINGS, THE LD. CIT(A) CALLED FOR A REMAND REPORT. THE ASS ESSING OFFICER, IN HIS REPLY DATED 19.12.2011, CLARIFIED THAT THE SAID ADDITION WAS MA DE U/S. 40(A)(IA) OF THE ACT AS THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE ON THE SAID A MOUNT. IN THE SUBSEQUENT REPORT DATED 10-04-2012, THE ASSESSING OFFICER SUBMITTED T HAT THE ASSESSEE HAD CLAIMED THE VERY SAME AMOUNT AS DEDUCTION IN THE ASSESSMENT YEA R 2008-09 ALSO. SINCE THE ASSESSEE HAS CLAIMED DEDUCTION OF THE VERY SAME AMO UNT FOR THE ASSESSMENT YEAR 2008-09 AND SINCE THE SAME HAS BEEN ACCEPTED BY THE AO IN THAT YEAR, THE LD CIT(A) OBSERVED THAT THE ASSESSEE CANNOT CLAIM DOUBLE DEDU CTION FOR THE VERY SAME AMOUNT. THE LD CIT(A) ALSO OBSERVED THAT THE ABOVE SAID CLA IM WAS ALLOWED IN THE SUCCEEDING YEAR, I.E., THE YEAR IN WHICH THE ASSESSEE DEDUCTED AND PAID THE TDS AMOUNT. ACCORDINGLY, THE LD. CIT(A) CONFIRMED THE DISALLOWA NCE OF RS. RS. 1,47,91,477/- MADE IN THE YEAR UNDER CONSIDERATION. AGGRIEVED, THE AS SESSEE HAS FILED THIS APPEAL BEFORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL FLATS. THO UGH THE ACCOUNTING STANDARD-7 PRESCRIBED BY ICAI MANDATES ADOPTION OF PERCENTAGE COMPLETION METHOD FOR RECOGNIZING INCOME, THE ASSESSEE IS OF THE VIEW THA T THE SAID ACCOUNTING STANDARD IS NOT APPLICABLE TO IT. HOWEVER, THE ASSESSEE HAS CHOSEN TO ADOPT THE PERCENTAGE COMPLETION METHOD FOR RECOGNIZING THE INCOME. THE ASSESSEE HA S MADE PROVISION FOR EXPENSES AT THE YEAR END. ACCORDING TO LD A.R, THE TDS LIABILI TY SHALL NOT ARISE TO SUCH PROVISION FOR EXPENSES. ALTERNATIVELY, THE LD. AR CONTENDED THAT THE PROVISION FOR EXPENSES SO MADE IS ALREADY INCLUDED IN THE WORK-IN-PROGRESS AMOUNT WHICH IS CREDITED TO THE PROFIT AND LOSS ACCOUNT AND HENCE, THE CLAIM OF MAKING PROVISI ON FOR EXPENSES STANDS NULLIFIED. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF THE ABOVE SAID AMOUNT IN THE ASSESSMENT YEAR 2008-09 ON PROTECTIVE BASIS AND HENCE, THE LD. CIT(A) SHOULD NOT HAVE TAKEN COGNIZANCE OF THE SAME FOR DECIDING THE ISSUE AGAINST THE ASSESSEE. I.T.A. NO.140 /COCH/2012 3 5. ON THE CONTRARY, THE LD. DR SUBMITTED THAT THE A SSESSEE IS NOT DENYING THE FACT THAT THE PROVISION FOR EXPENSES IS SUSCEPTIBLE TO T AX DEDUCTION AT SOURCE. THE LD. DR FURTHER SUBMITTED THAT THE PROVISIONS OF SEC. 194C SHALL STAND ATTRACTED EVEN IF THE AMOUNT IS NOT CREDITED TO THE ACCOUNT OF THE PAYEE BUT TO ANY OTHER ACCOUNT LIKE SUSPENSE ACCOUNT ETC. ACCORDINGLY, THE LD. DR SU BMITTED THAT THE ASSESSEE WOULD BE LIABLE TO DEDUCT TAX AT SOURCE U/S. 194C OF THE ACT , EVEN IF THE ASSESSEE CREATES A PROVISION FOR EXPENSES. THE LD. DR FURTHER SUBMITT ED THAT THE ASSESSEE HAS FILED A REVISED RETURN IN THE SUCCEEDING ASSESSMENT YEAR WH EREIN IT HAS CLAIMED THE VERY SAME AMOUNT AS DEDUCTION APPARENTLY ON THE REASONING THA T IT HAS DEDUCTED TAX ON THE SAID AMOUNT. HENCE, THE LD. CIT(A) HAS CONFIRMED THE AD DITION MADE IN THE INSTANT YEAR, SINCE THE ASSESSEE IS NOT ENTITLED TO CLAIM DOUBLE DEDUCTION FOR THE VERY SAME AMOUNT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULL Y PERUSED THE RECORD. ADMITTEDLY, THE ASSESSEE HAS CREATED A PROVISION FO R EXPENSES. HOWEVER, BOTH THE PARTIES HAVE NOT SPECIFIED THE NATURE OF THE EXPENS ES SO PROVIDED FOR. HOWEVER, THE LD A.R HAS SUBMITTED THAT THE PROVISION FOR EXPENSES S O MADE HAS BEEN INCLUDED IN WORK IN PROGRESS AND FROM THIS SUBMISSION; IT CAN BE UN DERSTOOD THAT THE PROVISION MADE BY THE ASSESSEE SHOULD BE RELATED TO THE CONSTRUCTION EXPENSES. 6.1 UNDER AS-29 ISSUED BY THE INSTITUTE OF CHART ERED ACCOUNTANTS OF INDIA UNDER THE TITLE PROVISIONS, CONTINGENT LIABILITIES AND CONT INGENT ASSETS, THE TERMS PROVISION AND LIABILITY ARE DEFINED AS UNDER:- A PROVISION IS A LIABILITY WHICH CAN BE MEASURED ONLY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A LIABILITY IS A PRESENT OBLIGATION OF THE ENTERPRISE ARISING FROM PAST EVENTS, THE SETTLEMENT OF WHICH IS EXPECTED TO RESULT IN AN OUT FLOW FROM THE ENTERPRISE OF RESOURCES EMBODYING ECONOMIC BENEFITS. THE ACCOUNTING STANDARD FURTHER STATES AS TO WHEN A PROVISION SHOULD BE RECOGNISED. IT IS STATED AS UNDER:- I.T.A. NO.140 /COCH/2012 4 A PROVISION SHOULD BE RECOGNISED WHEN:_ (A) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RE SULT OF PAST EVENT; (B) IT IS PROBABLE THAT AN OUTFLOW OF RESOURCES EMB ODYING ECONOMIC BENEFITS WILL BE REQUIRED TO SETTLE THE OBLIGATION; AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE CONDITIONS ARE NOT MET, NO PROVISION SHOU LD BE RECOGNISED. THUS, IT IS SEEN THAT A PROVISION IS MADE BY AN ENT ERPRISE, WHEN IT HAS GOT A PRESENT OBLIGATION IN RESPECT OF A PAST EVENT AND A RELIABL E ESTIMATE CAN BE MADE OF THE AMOUNT OF OBLIGATION. IN THE INSTANT CASE, THE VERY FACT THAT THE ASSESSEE HAS CREATED A PROVISION FOR EXPENSES, APPARENTLY RELATING TO CONS TRUCTION ACTIVITY, WOULD SHOW THAT THE WORK RELATING TO THE SAID EXPENSES HAS ALREADY BEEN COMPLETED AND THE ASSESSEE HAS GOT A PRESENT OBLIGATION IN RESPECT THEREOF. HENCE, THE ASSESSEE IS ACCEPTING THE LIABILITY TO PAY THE AMOUNT FOR WHICH THE PROVISION IS CREATE D. 6.2 A CAREFUL READING OF THE PROVISIONS OF SEC. 194C WOULD SHOW THAT ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT FOR CARRYING OUT ANY WORK IN PURSUANCE OF A CONTRACT, SHALL DEDUCT THE TAX AT SOURCE EITHE R AT THE TIME OF CREDIT OF THE SAME TO THE ACCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAY MENT THEREOF, WHICHEVER IS EARLIER. IT IS FURTHER PROVIDED IN EXPLANATION 2 OF SEC. 194C, W HICH EXISTED AT THE RELEVANT POINT OF TIME, THAT THE SAID TDS LIABILITY WOULD ARISE EVEN IF THE AMOUNT IS CREDITED TO ANY ACCOUNT WHETHER CALLED SUSPENSE ACCOUNT OR CALLED B Y ANY OTHER NAME. IN THE INSTANT CASE, THE LD CIT(A) HAS OBSERVED THAT THE ASSESSEE S CLAIM FOR DEDUCTION OF VERY SAME AMOUNT IN THE SUCCEEDING YEAR WAS ALLOWED, SINCE TH E ASSESSEE HAD DEDUCTED TAX AT SOURCE THEREON IN THAT YEAR. THIS FACT SHOWS THAT THE ASSESSEE IS ACCEPTING THE POSITION THAT THE PROVISION FOR EXPENSES SO MADE IS SUSCEPTI BLE FOR DEDUCTION OF TAX AT SOURCE. FURTHER, THE PROVISIONS OF SEC. 194C CLEARLY STATES THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE EITHER AT THE TIME OF CREDIT TO THE A CCOUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF, WHICHEVER IS EARLIER. IT IS FU RTHER PROVIDED THAT THE SAID LIABILITY WOULD ARISE EVEN IF THE AMOUNT IS CREDITED TO ANY O THER ACCOUNT WHETHER CALLED SUSPENSE ACCOUNT OR BY ANY OTHER NAME. HENCE, IN OUR VIEW, THE ASSESSEE WOULD BE I.T.A. NO.140 /COCH/2012 5 LIABLE TO DEDUCT TAX AT SOURCE U/S 194C ON THE AMOU NT PROVIDED UNDER THE HEAD PROVISION FOR EXPENSES. HENCE, WE REJECT THE CO NTENTIONS OF THE ASSESSEE THAT THE TDS PROVISIONS SHALL NOT APPLY TO THE PROVISION FOR EXPENSES. 6.3 THE ASSESSEE FURTHER SUBMITTED THAT THE WORK IN PROGRESS AMOUNT CREDIT TO THE PROFIT AND LOSS ACCOUNT INCLUDES THE AMOUNT OF PROV ISION SO CREATED. ACCORDINGLY, IT WAS CONTENDED THAT THE PROVISION FOR CONSTRUCTION EXPEN SES DEBITED TO THE PROFIT AND LOSS ACCOUNT STOOD NULLIFIED BY THE WORK-IN-PROGRESS CRE DITED TO THE PROFIT AND LOSS ACCOUNT. IN OUR VIEW, THE SAID SUBMISSIONS WOULD NOT ABSOLVE THE ASSESSEE FROM THE TDS LIABILITY U/S 194C OF THE ACT, SINCE A CAREFUL READING OF THE PROVISIONS OF SEC. 194C WOULD SHOW THAT THE SAID SECTION IS CONTRACT SPECIFIC AND NO T RELATED TO THE INCOME OF THE ASSESSEE. HENCE, THIS ARGUMENT OF THE ASSESSEE ALS O FAILS. 6.4. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS C LAIMED THE IMPUGNED AMOUNT AS DEDUCTION IN THE SUCCEEDING ASSESSMENT YEAR, I.E., ASSESSMENT YEAR 2008-09. THOUGH THE ASSESSEE CONTENDS THAT IT HAS CLAIMED THE SAME ON PROTECTIVE BASIS, WE DO NOT FIND ANY SUCH OBSERVATION IN THE ASSESSMENT ORDER WHICH IS PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE. THE LD. CIT(A) HAS RIGHTLY POINTED O UT THAT THE ASSESSEE HAS CLAIMED THE VERY SAME AMOUNT TWICE, I.E., IN ASSESSMENT YEAR 2 007-08 AND ALSO IN ASSESSMENT YEAR 2008-09. 6.5 IN THE PRECEDING PARAGRAPHS, WE HAVE HELD T HAT THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE ON THE PROVISION FOR EXPENSES CREATED BY THE ASSESSEE. IT AN ADMITTED FACT THAT THE ASSESSEE HEREIN DID NOT DEDUCT TAX AT SOURCE FROM THE AMOUNT OF PROVISION SO CREATED. WE HAVE ALREADY REJECTED VARIOUS CONTE NTIONS URGED BY THE LD A.R. UNDER THESE CIRCUMSTANCES, IN OUR VIEW, THE LD. CIT(A) WA S JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S. 40( A)(IA) OF THE ACT. ACCORDINGLY, WE UPHOLD HIS ORDER ON THIS ISSUE. I.T.A. NO.140 /COCH/2012 6 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 06-11-2 013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 6TH NOVEMBER, 2013 GJ COPY TO: 1. M/S. ABAD BUILDERS (P) LTD., ABAD PLAZA BUILDING , M.G. ROAD, KOCHI-682 035. 2.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE- 1(1), RANGE-1, KOCHI. 3 THE COMMISSIONER OF INCOME-TAX(APPEALS)-II, KOCHI . 4.THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN