M/s Vastukar, V. ITO, Balasore

ITA 142/CTK/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52364 (ITAT-CUTTACK)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 04-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 14-03-2011
• Court: TRIBUNAL
• Department Lawyers: PARAMITA TRIPATHY
• Assessee Lawyers: NILRATAN DUTTTA AR OF
• Keywords: Unexplained investment; Principle of natural justice; Additional evidence
• Section: 68; 69

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO.142/CTK/2011 (ASSESSMENT YEAR 2007 - 08) ITA NO.192/CTK/2011 (ASSESSMENT YEAR 200 7 - 08) M/S.VASTUKAR, JAIN ROAD, BALASORE. PAN: AAFFV 0054 L .. APPELLANT - VERSUS - INCOME - TAX OFFICER, WARD 2, BALASORE. .. RESPONDENT INCOME - TAX OFFICER, WARD 2, BALASORE. .. APPELLANT - VERSUS - M/S.VASTUKAR, JAIN ROAD, BALASORE. PAN: AAFFV 0054 L .. RESPONDENT FOR THE ASSESSEE : SHRI NILRATAN DUTTTA, AR OF THE ASSESSEE FOR THE DEPARTMENT : SMT. PARAMITA TRIPATHY, DR ORDER S HRI K.K.GUPTA, ACCOUNTANT MEMBER : THESE APPEALS BY THE ASSESSEE AS WELL AS REVENUE ARISE OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) DT.28.1.2011. 2. THE GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL READ AS UNDER : 1. FOR THAT T HE AUTHORITIES BELOW IS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF 80,000 U/S. 40(A)(IA) OF THE INCOME TAX ACT, 1961. 2. FOR THAT THE AUTHORITIES BELOW HAD NOT APPLIED THEIR MIND THAT SMT. MADHU CHANDRA DEY BEING THE LAND OWNER AND PAYMENT WHEREOF 80, 000 IS MANDATORY IN NATURE AS TO THE TERMS OF AGREEMENT DATED 02.07.2003 IS NOT BEING A COMMISSION FALL WITHIN THE MEANING OF SECTION 194H OF THE INCOME TAX ACT, 1961 3. FOR THAT THE AUTHORITIES BELOW IS NOT JUSTIFIED SUSTAINING THE ADDITION FOR UNEXPLAINE D INVESTMENT OF 17 CREDITORS OUT OF 22 CREDITORS IS OPPOSED TO THE PRINCIPAL OF NATURAL JUSTICE. 4. FOR THAT THE IMPUGNED ADDITION MADE BY THE AUTHORITIES BELOW MERELY ON SUSPICION ON THE BASIS OF CONJECTURES AND SURMISES, WHICH IS NOT PERMISSIBLE IN LAW. ITA NO.142/CTK/2011 AND ITA NO.192/CTK/2011 (CROSS APPEALS) 2 5. FOR THAT THE APPELLANT BEG TO RESERVE THE RIGHT OF ADDING TO OR MODIFYING OR ALTERING ANY OF THE GROUNDS OF APPEAL REFERRED TO HEREIN, IF NECESSARY AT THE TIME OF HEARING OF THIS APPEAL. 3. THE REVENUE, IN THEIR APPEAL, HAS RAISED THE FOLLOWING GROUND S. 1. WHETHER IN THE FACTS AND CIRCUMSTANCE CASE THE LEARNED CIT(A) IS JUSTIFIED TO HOLD THAT PERCENTAGE COMPLETION METHOD AS LAID DOWN IN THE ACCOUNTING STANDARD AS - 7,2002 ISSUED BY ICAI WAS NOT APPLICABLE TO THE BUSINESS OF CONSTRUCTING AND SELLING O F M ULTI STORIED BUILDINGS AND THEREBY COMPUTATION OF PROFIT BY PERCENTAGE COMPLETION METHOD AS DONE BY THE ASSESSING OFFICER AT 2,65,909 WAS NOT JUSTIFIED. 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) IS JUSTIFIED TO DELETE ADDIT ION MADE ON ACCOUNT OF 75,500 WHICH REPRESENTED ADJUSTMENT AGAINST THE ADVANCES IN THE NAME OF M/S. M. JENA. 3. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) IS JUSTIFIED TO DELETE THE ADDITIONS MADE FOR 4,67,000 REPRESENTING WI THDRAWAL FROM THE BANK ACCOUNT OF THE FIRM FOR THE PERSONAL PURPOSES OF THE PARTNERS NOT RELATED TO THE BUSINESS ACTIVITIES OF THE FIRM. 4. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) IS JUSTIFIED TO ADMIT ADDITIONAL EVIDENCES IN RESPECT OF 5 SUNDRY CREDITORS OUT OF 22 PARTIES NOT SUBSTANTIATED BEFORE THE ASSESSING OFFICER AND TO DIRECT ASSESSING OFFICER TO ACCEPT THE CREDIT BALANCE STANDING IN THE NAME OF SUCH 05 PERSONS AS GENUINE INSTEAD OF ALLOWING THE ASSESSING OFFICER TO CROS S EXAMINE THE ADDITIONAL EVIDENCES PRODUCED IN VIOLATION OF THE RULE 46 (A) OF THE INCOME TAX ACT, 1961. 4. WE PROPOSE TO DISPOSE OF BOTH THE APPEALS TOGETHER BY THIS ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY AS PER THE SUBMISSIONS PUT FORTH BY THE R IVAL PARTIES BEFORE US. ITA NO.142/CTK/2011 AND ITA NO.192/CTK/2011 (CROSS APPEALS) 3 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE INCLINED TO HOLD THAT THE CLAIM OF THE ASSESSEE O N CONFIRMING THE DISALLOWANCE OF 80,000 BY THE LEARNED CIT(A), UNDER THE DEEMING PROVISIONS OF SECTION 40(A)(IA) WAS NOT LEGALLY JUSTIFIED . SMT. MADHU CHANDRA DEY BEING THE LAND OWNER WAS PAID 80,000 IN THE NATURE OF TERMS OF THE AGREEMENT DT.2.7.2003 WAS NOT EXPENSE CLAIMED BY THE ASSES SEE FOR THE PURPOSE OF DISALLOWANCE ON THE FINDING OF THE ASSESSING OFFICER THAT TAX AT SOURCE OUGHT TO HAVE BEEN DEDUCTED UNDER THE PROVISIONS OF SECTION 194H WHICH DISALLOWANCE COULD ONLY BE MADE ON NON - DEDUCTION IF EXPENSES HAVE BEEN CLAIMED FROM THE BU SINESS INCOME OF THE ASSESSEE. THE ASSESSE HAD NOT CLAIMED THE SAME AS EXPENSES AND HAD ACTUALLY CAPITALIZED THE SAME BY INCLUDING THE SAME IN THE WORK - IN - PROGRESS , WHICH FACT IS ALSO NOT DISPUTED BY THE LEARNED DR, THEREFORE, CANNOT BE ISOLATED FOR THE PU RPOSE OF DISALLOWANCE UNDER THE DEEMING PROVISIONS OF SECTION 40(A)(IA). THIS GROUND RAISED BY THE ASSESSEE IS THEREFORE ALLOWED AND THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF 80,000. 6. IN RESPECT TO THE SECOND ISSUE REGARDING SUSTA INING THE ADDITION FOR UNEXPLAINED INVESTMENT OF 17 CREDITORS OUT OF 22 CREDITORS, WE ARE UNABLE TO FIND ANY JUSTIFICATION IN THE INTERPRETATION OF THE FACTS AS NARRATED BY THE ASSESSING OFFICER AND AS CONSIDERED BY THE LEARNED CIT(A) DIRECTING THE ASSESSI NG OFFICER TO DELETE THE ADDITION PARTLY AFTER VERIFYING THE REMAINING CREDITORS WHO HAD APPEARED BEFORE THE ASSESSING OFFICER COULD NOT BE SUBJECTED TO DISALLOWANCE UNDER THE PROVISIONS OF SECTION 68 OR 69 . WE HAVE PERUSED THE ORDER OF THE ASSESSING OFFI CER WHEN THE SPECIFIC ADDITION HAS BEEN MADE U/S.69 AMOUNTING TO 21,71,142 THAT PERTAIN ED TO 22 CREDITORS WHO ARE ACTUALLY THE PROSPECTIVE BUYERS OF THE FLATS TO BE CONSTRUCTED BY THE ITA NO.142/CTK/2011 AND ITA NO.192/CTK/2011 (CROSS APPEALS) 4 ASSESSEE BEING A DEVELOPER OF HAVING PURCHASED THE LAND FROM SMT. MADHU CHANDRA DEY. THE ASSESSING OFFICER IN HIS DETAILED ORDER HAS NOT BEEN ABLE TO SUBSTANTIATE AS TO HOW THE SAME COULD BE TAXED UNDER THE PROVISIONS OF SECTION 69 WHEN THE ASSESSEE EXPLAINED THAT THE PROSPECTIVE BUYERS HAD ADVANCED MONEY FOR PURCHASE OF FLAT S ON THEIR COMPLETION. THE ASSESSEE HAD RETURNED SALE OF FLATS AMOUNTING TO 58,79,666 AND HAD SHOWN WORK - IN - PROGRESS AMOUNTING TO 73,08,194 THEREFORE HAD RENDERED INCOME IN ACCORDANCE WITH THE PERCENTAGE METHOD OF INCOME WHICH ACCOUNTING STANDARD AS CONSTRUED BY THE ASSESSING OFFICER DID NOT APPLY TO THE CONTRACTEES. THEREFORE M ISINTERPRETING THE ACCOUNTING STANDARD BEING CONSTRUCTION CONTRACT AS - 7, THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE OF THE ADVANCE RECEIVED FROM THE PROSPECTIVE BUYERS ON THE GROUND THAT THEY HAD NOT RESPONDED TO THE SUMMONS ISSUED TO THEM WHICH THE L EARNED CIT(A) PARTLY CONSIDERED IN FAVOUR OF THE ASSESSEE WHEN HE DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION ONLY FOR THOSE WHO APPEARED BEFORE HIM. IN ANY CASE, THE ADDITION CANNOT HAVE BEEN MADE UNDER THE PROVISIONS OF SECTION 69 AGAINST WH IC H NO CONTROVERTING MATERIAL HAS EITHER BEEN PUT FORTH BY THE LEARNED ASSESSING OFFICER OR THE LEARNED DR. HOWEVER, ON THE BASIS OF THE ISSUES RAISED BY THE REVENUE IN THEIR APPEAL WHO INTER ALIA HAVE AGITATED THE DELETION OF THE ADDITION OF 2,65, 909 BEING THE PROFIT DECLARED ON THE PERCENTAGE COMPLETION METHOD WAS NOT THE CASE OF THE ASSESSEE WAS APPROPRIATELY CONSIDERED BY THE LEARNED CIT(A) FOR DELETION WHEN IT WAS HELD THAT THE ASSESSEE HAD BEEN RENDERING INCOME FROM ASSESSMENT YEAR 2003 - 04 WHEN SUCH INCOMES AGAINST THE COST OF WORK - IN - PROGRESS HAD BEEN DECLARED WAS CONSIDERED FOR ESTIMATION OF THE PROFIT BY THE ASSESSING OFFICER WAS WITHOUT ANY BASIS AS THE ASSESSEE HAD DECLARED THE SALES AMOUNTING TO ITA NO.142/CTK/2011 AND ITA NO.192/CTK/2011 (CROSS APPEALS) 5 53.54 LAKHS AND INCOME THEREIN HAS BEEN RENDERED , THERE WAS NO MATERIAL FOR THE ASSESSING OFFICER TO THRUST HIS METHOD OF ACCOUNTING AS PER ACCOUNTING STANDARD AS - 7. THE GROUND RAISED BY THE REVENUE THEREFORE IS BASELESS AND IS DIRECTED TO BE DISMISSED. 7 . SIMILARLY, THE ADDITION DELETED BY THE LEARNED CIT(A) ON ACCOUNT OF 75,500 REPRESENTING ADJUSTMENT AGAINST ADVANCE IN THE NAME OF ONE SHRI M.JENA AND ALSO THE DELETION OF ADDITION OF 4,67,000 REPRESENTING WITHDRAWAL FROM THE BANK ACCOUNT OF THE FIRM FO R THE PERSONAL DRAWINGS OF THE PARTNERS WAS RIGHTLY DELETED AS THE ASSESSING OFFICER HAD NO BASIS TO CONSIDER THE SAME OTHERWISE THAN AS STATED IN THE BOOKS OF ACCOUNT. IT WAS NOT THE CASE OF THE ASSESSING OFFICER THAT THE PARTNERS HAD MADE WITHDRAWALS FRO M THE FIRM WHICH OUGHT TO HAVE BEEN UTILISED FOR THE PURPOSE OF BUSINESS OF THE FIRM WHEN THE CAPITAL STOOD REDUCED TO THAT EXTENT. THE PARTNERSHIP DEED PROVIDES THAT THE PARTNERS CAN UTILIZE THE SHARE OF PROFITS TILL SUCH TIME THE OCCURRENCE OF THE PROFIT WAS TO CRYSTALLIZE AT THE END OF THE YEAR. THESE TWO DELETIONS MADE BY THE LEARNED CIT(A) THEREFORE ARE UPHELD AND THE GROUND RAISED BY THE REVENUE ARE DISMISSED. 8. COMING BACK TO THE ISSUE REGARDING DELETION OF ADDITION ON ACCOUNT OF FIVE SUNDRY CREDITO RS OUT OF 22 SUNDRY CREDITORS AS NOTED BY THE ASSESSING OFFICER IN HIS ORDER, WE ARE OF THE VIEW THAT THE ASSESSEE IS ALSO IN APPEAL ON THE ISSUE THAT THERE WAS NO BASIS IN THE HANDS OF THE AUTHORITIES TO TAX THE SAME EITHER UNDER THE PROVISIONS OF SECTION 69 OR UNDER THE P ROVISIONS OF SECTION 68. WE ARE INCLINED TO HOLD THAT THE AUTHORITIES BELOW FAILED TO INTERPRET THE FACTS IN ACCORDANCE WITH THE PROVISIONS OF THE I.T.ACT. THE ASSESSING OFFICER HAS MADE THE ADDITION OF THE ADVANCES FROM PROSPECTIVE BUYERS OF THE FLATS WH EN THE ASSESSE HAS BEEN ABLE TO FURNISH THE DETAILS ITA NO.142/CTK/2011 AND ITA NO.192/CTK/2011 (CROSS APPEALS) 6 BEING THE NAMES AND ADDRESSES OF THE PROSPECTIVE BUYERS AND HAS ALSO SUBMITTED SAME IN THE PAPER BOOK PAGES 14 AND 15 WHICH INDICATE THAT THE PROSPECTIVE BUYERS CHOSE TO PAY THE AMOUNT IN CHEQUE AND PAID IN EARLIER YEAR AND THE BA LANCE IN THE IMMEDIATELY SDUCCEEDING ASSESSMENT YEAR WERE INCREASED ON THEIR PAYMENT IN THE IMPUGNED ASSESSMENT YEAR TO BE ADJUSTED BY WAY OF A SALE OR REFUND IN THE ASSESSMENT YEAR 2008 - 09. THERE WAS NO CASE FOR INVOKING THE PRO VISIONS OF SECTION 69 WHEN THE ASSESSEE HAD CONSTRUCTED THE FLATS AND HAD NOT BEEN COMPLETED WERE THE FLATS AGAINST WHICH THE ADVANCE HAD NOT BEEN ADJUSTED AGAINST SALES. THEREFORE, ON THE NON - APPEARANCE OF THE PROSPECTIVE BUYERS, THE LEARNED CIT(A) COULD NOT HAVE PART DELETED THE ADDITION WHICH REVENUE CONTENDS WAS BY INVOKING THE PROVISIONS OF RULE 46A, AND HAS BEEN APPEALED AGAINST BEFORE US IN VIEW OF THE FACT THAT THERE WAS NO EVIDENCE TO BE EXAMINED BY THE LEARNED CIT(A) FOR DELETING THE SAME. THE LEA RNED CIT(A) RIGHTLY NOTED THAT THE ADDITION CANNOT BE MADE U/S.69 INSOFAR AS THE ASSESSEE IS STILL CONSTRUCTING THE BUILDING WHICH AGREEMENT HE HA D OBTAINED AND WAS ABLE TO RENDER THE INCOME ON THE BASIS OF SALES THE REMAINING WAS HELD BACK AS WORK - IN - PROG RESS, AT COST OR MARKET VALUE , WHICHEVER IS LESS , WAS NOT TO BE VISITED FOR THE PURPOSE OF DISALLOWANCE OF SUNDRY CREDITORS U/S.68 OR 69. HOWEVER, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PRAYED THAT A SUITABLE OPPORTUNITY BE AFFORDED THIS TO EXPLAIN THE CASE OF THE ASSESSEE TO THE ASSESSING OFFICER INSOFAR AS THE ASSESSING OFFICER CONSIDERED THE COMPUTATION OF INCOME ON THE BASIS OF SALES WHICH HAD CRYSTALLIZED ONLY IN THE IMPUGNED ASSESSMENT YEAR VIS - A - VIS WORK - IN - PROGRESS WHICH HA D BEEN CARRIED FORWA RD TO THE SUBSEQUENT YEAR INCLUD ING THOSE FLATS WHICH HAD BEEN SUBJECTED TO RECEIPT OF ADVANCE BY THE PROSPECTIVE BUYERS BUT COULD NOT BE BOOKED AS S ALES IN THE IMPUGNED ITA NO.142/CTK/2011 AND ITA NO.192/CTK/2011 (CROSS APPEALS) 7 ASSESSMENT YEAR . THESE CREDITORS WERE ACTUALLY PERSONS INTERESTED ON PAYING FOR FLATS AS AND WHEN THEY ARE COMPLETED AND AS PER THE TERMS OF THE SALE AGREEMENT. WE FIND THE SUBMISSIONS OF THE LEARNED COUNSEL JUSTIFIED AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ADVANCE RECEIVED AGAINST THE SAL ES OF F LATS WHICH SALE HAS OCCURRED IN THE SUBSEQUENT YEAR ON THE BASIS OF ACCOUNTING SYSTEM OF THE ASSESSEE AND IS NOT FAULTY AS PER THE ACCOUNTING STANDARD. THIS GROUND OF THE REVENUE AS WELL AS THE ASSESSEE, IS THEREFORE, ALLOWED FOR STATISTICAL PURPOSE S. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE PARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON DT. 12.08.2011 S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 12.08.2011 H.K.PADHE E, SENIOR PRIVATE SECRETARY. COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE : M/S.VASTUKAR, JAIN ROAD, BALASORE. 2. THE DEPARTMENT : INCOME - TAX OFFICER, WARD 2, BALASORE. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD F ILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.