ACIT, Hyderabad V. M/s. KBR Builders, Hyderabad

ITA 1434/HYD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66361 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 11-07-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 19-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMISHA S GUPT
• Assessee Lawyers: K A SAI PRASAD
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.1434/ HYD/2010 : AS SESSMENT YEAR 2007-08 ASST. COMMISSIONER OF INCOME-TAX CIRCLE 4(1), HYDERABAD V/S. M/S. KBR BUILDERS, HYDERABAD. [PAN - AADFK 9273E] (APPELLANT) (RESPONDEN T) APPELLANT BY : SMT. AMISHA S.GUPT RESPONDENT BY : SHRI K.A.SAI PRASAD DATE OF HEARING 04.10.2012 DATE OF PRONOUNCEMENT 12.10.2012 O R D E R PER SANJAY ARORA, ACCOUNTANT MEMBER: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, HYDERABAD ( CIT(A)) DATED 19/8/2010, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT HEREINAFTER) VIDE O RDER DATED 11/12/2009 FOR THE ASSESSMENT YEAR 2007-08, DETERMINING ITS INCOME AT RS.59,65,180. 2. THE INSTANT APPEAL RAISES TWO GROUNDS, EACH OF W HICH WE SHALL TAKE UP IN SERIATIM. 3.1 THE FIRST GROUND IMPUGNS THE DELETION OF A DISA LLOWANCE IN THE SUM OF RS.16,00,363, DEBITED UNDER THE ACCOUNT HEAD PAYME NT TO SUB-CONTRACTORS, INCURRED TOWARD A PAINT CONTRACT, EFFECTED BY THE ASSESSING OFFICER (AO) U/S. 40(A)(IA) OF THE ACT. ITA NO.1434/HYD/2010 KBR BUILDERS, HYDERABAD. 2 3.2 AT THE VERY OUTSET, IT WAS CLARIFIED BY THE LEA RNED DEPARTMENTAL REPRESENTATIVE (DR), THAT THERE HAS BEEN A MISTAKE IN-AS-MUCH AS T HE LD. CIT(A) HAS IN FACT CONFIRMED A PART OF THE SAID DISALLOWANCE, SO THAT THE REVENUE S GRIEVANCE IS RESTRICTED TO ONLY THE BALANCE PART VACATED BY HIM, I.E., AT RS.5,33,500, AND FOR WHICH SHE TOOK US THROUGH PARA 6 OF THE IMPUGNED APPELLATE ORDER. AS REGARDS THE AMO UNT DELETED, THE SAME HAS BEEN ON THE BASIS THAT THE SAME IS IN FACT TOWARD PURCHASE OF P AINT, AND NOT PAID TO ANY PAINT CONTRACTOR AGAINST WORK DONE, SO THAT IT IS NOT SUBJECT TO S.4 0(A)(IA) OF THE ACT. THIS, SHE AVERRED, WAS IN CONTRADICTION TO THE CLEAR FINDING BY THE AO THA T THE SAID SUM FORMS PART OF THE SUM OF RS.235.15 LAKHS DEBITED IN ITS ACCOUNTS BY THE ASSE SSEE TOWARD PAYMENTS TO SUB- CONTRACTORS AND, THUS, LIABLE FOR DEDUCTION OF TAX AT SOURCE, AND WHICH HAS ADMITTEDLY NOT BEEN DONE. 3.3 THE LD. AUTHORIZED REPRESENTATIVE (AR), ON THE OTHER HAND, WOULD SUBMIT THAT NOTWITHSTANDING THE SAID DEBIT IN ACCOUNTS, WHICH I S NOT DENIED, THE SAID AMOUNT IS ONLY TOWARD PURCHASE OF PAINT, AND THUS STANDS RIGHTLY D ELETED BY THE FIRST APPELLATE AUTHORITY, AS COULD BE READILY SEEN FROM THE LEDGER EXTRACT OF TH E RELEVANT ACCOUNT, PLACING A COPY THEREOF ON RECORD. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WITHOUT DOUBT, EVEN AS EXPRESSED BY THE BENCH DURING THE HEARING, IF TH E IMPUGNED AMOUNT IS AGAINST PURCHASE OF PAINT PAID DIRECTLY TO THE PAINT SUPPLIERS, AS A PPEARS FROM THE LEDGER ACCOUNT FURNISHED, THE SAME IS ONLY TOWARD PURCHASE OF MATERIAL, AND T HERE IS NO QUESTION OF THE SAME BEING A CONTRACTUAL PAYMENT AGAINST WORK DONE, LIABLE FOR D EDUCTION OF TAX AT SOURCE U/S. 194C AND, CONSEQUENTLY, DISALLOWANCE U/S. 40(A)(IA) ON F AILURE TO DEDUCT OR PAY TAX AT SOURCE. THIS, WE MAY CLARIFY, IS SO AS IT IS THE NATURE OF THE SUM PAID AND NOT THE MANNER OR THE HEAD OF ACCOUNT UNDER WHICH IT STANDS BOOKED IN ACC OUNTS, I.E., ITS BOOK-KEEPING, WHICH WOULD BE DETERMINATIVE OF THE MATTER. AS SUCH, NOTW ITHSTANDING THE MANNER OF ITS ACCOUNTING, THE QUESTION TO BE RESOLVED IS AS TO TH E CHARACTER OF THE PAYMENT, I.E., TOWARD ITA NO.1434/HYD/2010 KBR BUILDERS, HYDERABAD. 3 PURCHASE OF GOODS OR FOR CONTRACT WORK. THE SUM UND ER REFERENCE HAVING BEEN REFLECTED IN THE ASSESSEES OWN ACCOUNTS AS PAYMENT TO SUB-CONTR ACTOR, WOULD THEREFORE REQUIRE A FACTUAL VERIFICATION AT THE END OF THE AO, WHICH RA THER OUGHT TO HAVE BEEN CAUSED TO BE DONE BY THE FIRST APPELLATE AUTHORITY U/S. 250(4). THE MATTER IS ACCORDINGLY RESTORED BACK TO THE FILE OF THE AO FOR NECESSARY VERIFICATION AND A DECISION IN ACCORDANCE WITH LAW PER A SPEAKING ORDER AFTER HEARING THE ASSESSEE. WE DECID E ACCORDINGLY. 5.1 THE REVENUES SECOND GROUND IS IN RELATION TO T HE CLAIM FOR INTEREST PAID TO THE PARTNERS, WHICH WAS ON FIXED CAPITAL OF RS.55.70 LAKHS AT THE RATE OF 12% P.A., I.E., IN TERMS OF CLAUSE 18 OF THE PARTNERSHIP DEED. THE AO OBSERVED DEBIT BALANCES IN THE ACCOUNT OF THREE OTHER PARTNERS (I.E., APART FROM THE CREDI T BALANCES IN RESPECT OF TWO BY WAY OF FIXED CAPITAL), WHICH THOUGH WERE CLASSIFIED AS CU RRENT CAPITAL ACCOUNTS. NETTING THE CREDIT AND DEBIT BALANCES WOULD ONLY YIELD THE CORR ECT CAPITAL OF THE FIRM, SO THAT HE WORKED OUT THE ALLOWABLE INTEREST WITH REFERENCE TO THE NET CAPITAL OF RS.18.72 LAKHS, DISALLOWING, THUS, RS.4,43,750 OUT OF THE CLAIMED S UM OF RS.6,68,400. IN APPEAL, THE ASSESSEE FOUND FAVOR WITH THE LD. CIT(A) TO THE EXT ENT THAT HE DIRECTED THAT THE SAID NETTING SHOULD BE MADE ON THE BASIS OF THE WITHDRAWALS AS M ADE DURING THE YEAR, I.E., ON A DAY TO DAY BASIS, AS AGAINST BY JUST REDUCING THE FIXED CA PITAL BY THE AMOUNT OF THE DEBIT BALANCES OUTSTANDING IN THE CURRENT CAPITAL ACCOUNTS AS AT T HE YEAR-END, WHICH IMPLIED THAT THE WITHDRAWAL/S (DEBITS) HAD TAKEN PLACE ON THE FIRST DAY OF THE RELEVANT PREVIOUS YEAR, THOUGH MAY HAVE, AS CLAIMED, BEEN DURING THE LATER PART OF THE YEAR. AGGRIEVED THE REVENUE IS IN APPEAL. 5.2 BEFORE US, WHILE THE LD. DR WOULD STATE THAT T HE IMPUGNED ORDER IS AMBIGUOUS, THE LD. AR FAIRLY CONCEDED TO THE ASSESSEE BEING AGREEA BLE TO THE NETTING OF THE CREDIT AND THE DEBIT BALANCES OUTSTANDING IN THE CAPITAL ACCOUNTS OF THE PARTNERS, WHETHER FIXED OR CURRENT, AND ITS SURVIVING GRIEVANCE BEFORE THE LD. CIT(A) W AS ONLY IN RELATION TO THE WORKING OF ITA NO.1434/HYD/2010 KBR BUILDERS, HYDERABAD. 4 THE INTEREST WHICH STANDS TO BE DISALLOWED THUS, AN D WHICH HAS BEEN RIGHTLY DECIDED BY THE LD. CIT(A), DIRECTING FOR ALLOWING INTEREST ON THE BASIS OF REDUCING BALANCES. 6. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE FIND NO AMBIGUITY IN THE IMPUGNED DIRECTION BY THE LD. CIT( A) PER PARA 5 OF THE APPELLATE ORDER. HOWEVER, IN VIEW OF THE COMMON CONTENTION OF THE PA RTIES THAT THE MATTER IS NOT FULLY CLARIFIED, SO THAT ORDER GIVING EFFECT THERETO IS Y ET TO BE PASSED BY THE AO, WE HAVE NO HESITATION IN CLARIFYING THAT THE NETTING OF THE FIXED AND CURRENT CAPITAL ACCOUNTS HAS BEEN ACCEPTED BY THE LD. CIT(A) IN PRINCIPLE, FINDI NG NO REFERENCE TO DIFFERENT CAPITALS, AS DID THE AO BEFORE HIM, IN THE PARTNERSHIP DEED, AND HAS FURTHER DIRECTED FOR THE INTEREST, BEING THE TIME COST OF FUNDS MADE AVAILABLE, TO BE WORKED OUT ON THE BASIS OF THE ACTUAL AMOUNT OUTSTANDING IN THE CAPITAL ACCOUNTS OVER THE YEAR, I.E., ON A DAY-TO-DAY BASIS, OR THE REDUCING (DAILY) BALANCE OF THE AGGREGATE CAPITAL. BOTH ASPECTS OF HIS DECISION ARE, IN OUR VIEW, IN CONSONANCE WITH LAW. WE DECIDE ACCORDINGLY . 7. IN THE RESULT, REVENUES APPEAL IS PARTLY ALLOW ED. ORDER PRONOUNCED IN THE COURT ON OCTOBER 12, ,2012 SD/- SD/- (SAKTIJIT DEY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/- OCTOBER 12 , 2012 COPY FORWARDED TO: 1. M/S. KBR BUILDERS, 1-1-385/12/17/L, III FLOOR, GAND HI NAGAR, NEW BAKARAM, HYDERABAD. 2. ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 4(1), H YDERABAD ITA NO.1434/HYD/2010 KBR BUILDERS, HYDERABAD. 5 3. 4 5. COMMISSIONER OF INCOME-TAX(APPEALS)-V, HYDERABAD COMMISSIONER OF INCOME-TAX-IV, HYDERABAD DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S.