Rao Construction Pvt.Ltd., Ahmedabad V. The CIT-Ahmedabad-III, Ahmedabad

ITA 1442/AHD/2008

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6875 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-12-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 24-04-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KRISHNA MURARI
• Assessee Lawyers: J P SHAH
• Keywords: Capital expenditure
• Section: 263; 28

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND A. K. GARODIA, AM. RAO CONSTRUCTION (P) LTD., 104, MANAS COMPLEX, JODHPUR CHAR RASTA, SATELLITE ROAD, AHMEDABAD. VS. COMMISSIONER OF INCOME-TAX, AHMEDABAD-III, AHMEDABAD. (APPELLANT) .. (RESPONDENT) AND DY. CIT, CIRCLE-5, AHMEDABAD. VS. RAO CONSTRUCTION (P) LTD., 104, MANAS COMPLEX, JODHPUR CHAR RASTA, SATELLITE ROAD, AHMEDABAD. (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI J. P. SHAH, AR REVENUE BY:- SHRI KRISHNA MURARI, CIT, DR DATE OF HEARING :1/12/2011 DATE OF PRONOUNCEMENT : 9/12/11. ITA NO.1442/AHD/2008 ASST. YEAR :2003-04 ITA NO.2180/AHD/2009 ASST. YEAR :2003-04 ITA NO. 1442 & 2180 ASST. YEAR 2003-04 2 O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . THESE ARE TWO APPEALS ONE FILED BY THE ASSESSEE A GAINST THE ORDER OF LD. CIT DATED 31.12.2007 PASSED U/S 263 OF THE A CT AND THE OTHER BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 17.04 .2009 DELETING THE ADDITION MADE BY AO IN PURSUANCE OF ORDER OF LD. CI T DATED 31.12.2007 PASSED U/S 263 OF THE ACT. ITA NO.1442/AHD/2008 ASST. YEAR 2003-04 (ASSESSEES APPEAL) 2. IN THIS APPEAL THE ASSESSEE HAS RAISED FOLLOWING GROUNDS :- (1) THE CIT ERRED IN PASSING A REVISION ORDER U/S 263 B Y ERRONEOUSLY HOLDING THAT THE ASSESSMENT ORDER U/S 1 43(3) PASSED BY THE AO WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDI CIAL TO THE INTEREST OF THE REVENUE. (2) THE CIT ERRED TO APPRECIATE THAT THE AO HAD APPLIED HIS MIND AND HAD REACHED A CONCLUSION AFTER EXAMINING THE RE CORDS AND EVIDENCE BEFORE PASSING THE ASSESSMENT ORDER U/S 14 3(3) AND HENCE THERE WAS NO QUESTION OF THE ASSESSMENT ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE RE VENUE. (3) THE CIT OUGHT TO HAVE APPRECIATED THAT BY THE FACT THAT HE HOLDS A SEPARATE OPINION ABOUT THE FACTS AND EVIDENCES AN D ABOUT HIS APPROACH TOWARDS MAKING AN ASSESSMENT, THE ASSESSME NT ORDER DOES NOT BECOME ERRONEOUS NOR DOES IT BECOME PREJUD ICIAL TO THE INTEREST OF THE REVENUE. ITA NO.2180/AHD/2009 ASST. YEAR 2003-04 (REVENUES APPEAL) 3. THE REVENUE HAS RAISED THE FOLLOWING GROUND IN T HIS APPEAL:- (1) THE LD. CIT(A)-XI, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN DELETING ADDITION OF RS.35,66,478/- MADE ON ACCOUNT OF CAPITAL EXPENDITURE. ITA NO. 1442 & 2180 ASST. YEAR 2003-04 3 4. FIRST WE TAKE UP REVENUES APPEAL. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUC TION OF ROADS AND DAMS FOR WHICH THEY ARE SUPPOSED TO PROVIDE BANK GU ARANTEE OF SCHEDULE BANK TO THE CONTRACTEE. THE COMPANY HAD TO SUBSCRIB E THE SHARES OF VISNAGAR NAGRIK SAHAKARI BANK LTD. FOR GETTING BANK GUARANTEE FACILITIES, HAD TO PUT FIXED DEPOSITS UNDER LIEN BY WAY OF MARG IN FOR AVAILEMT OF BANK GUARANTEE FACILITY AND HAD TO OPEN A CURRENT A CCOUNT WITH SAID BANK. ON ACCOUNT OF BAD FINANCIAL POSITION OF THE BANK, T HE BANKING OPERATIONS WERE SUSPENDED BY RBI AND THE ASSESSEE HAD CLAIMED SAID EXPENDITURE U/S 28 OF THE IT ACT, 1961 AS IT WAS A LOSS INCIDENTAL TO BUSINESS AFTER RELYING UPON VARIOUS DECISIONS INCLUDING THAT OF HONBLE SU PREME COURT IN THE CASE OF RAMCHANDAR SHIVNARAYAN VS. CIT (1978) 111 I TR 263 (SC). THE AO HAD MADE AN ADDITION OF RS.35,66,478/- CONSIDERI NG THE SAME AS CAPITAL EXPENDITURE. 5. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHEREIN DETAILED SUBMISSIONS HAD BEEN MADE WHICH AR E NARRATED BY LD. CIT(A) FROM PAGES 2 TO 8. THE LD. CIT(A) AFTER CON SIDERING THE FACTS OF THE CASE, CONTENTIONS OF AO AND THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING AS UNDER :- 2.2 THE SUBMISSIONS MADE BY THE AR OF THE APPELLAN T HAVE BEEN PERUSED. THE DECISIONS, REFERRED AS ABOVE, WHICH AR E RELIED UPON BY THE AR OF THE APPELLANT AND THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER HAVE ALSO BEEN EXAMINED. ITA NO. 1442 & 2180 ASST. YEAR 2003-04 4 2.2.1 AS IT COULD BE SEEN THAT THE AMOUNT IN QUESTI ON IS CURRENT ASSETS OF THE APPELLANT COMPANY AND THE SAID AMOUNT WAS DEPOS ITED WITH THE BANK AS PART OF THE BUSINESS ACTIVITY, WHICH IS EARNED B Y THE APPELLANT IN THE EARLIER YEARS. 2.2.2 IT IS SEEN THAT THE APPELLANT IS ENGAGED IN T HE BUSINESS OF CONSTRUCTION OF ROADS AND DAMS FOR WHICH THE APPELL ANT IS REQUIRED TO PROVIDE BANK GUARANTEE TO THE CONTRACTEE THROUGH A SCHEDULED BANK. THEREFORE, THE APPELLANT HAD SUBSCRIBED THE SHARES OF VISNAGAR BAGRIK SAHKARI BANK LTD., FOR GETTING BANK GUARANTEE FACIL ITES. 2.2.3 IT MAY BE SEEN THAT THE NOTIFICATION IS ISSUE D BY THE REGISTRAR OF CO- OP. SOCIETY, GUJARAT BY WHICH THE ABOVE BANK IS DEC LARED AS A SICK BANK AND WAS NOT ALLOWED TO REPAY DEPOSITS TO THE DEPOSI TORS IN EXCESS OF RS.1,000/-. THE MEMBERSHIP OF THE SAID BANK WAS CAN CELLED FROM CLEARING HOUSE AND CUSTODIAN WAS ALSO APPOINTED. ACCORDING T O THE AR THERE WAS NO POSSIBILITY OF RECOVERING THE FUNDS FROM THE ABO VE BANK. HENCE, THE COMPANY HAD WRITTEN OFF THE BALANCES OF THE AMOUNT OF RS.35,66,478/- WHICH WAS A BANK GUARANTEE AMOUNT TO OBTAIN BANK LO AN. 2.2.4 THEREFORE, HAVING CONSIDERED THE FACTS AND CI RCUMSTANCES OF THE CASE AND IN THE LIGHT OF THE LEGAL POSITION SET OUT IN THE DECISIONS, REFERRED AS ABOVE, WHICH ARE RELIED UPON BY THE AR OF THE AP PELLANT, I AM OF THE OPINION THAT THE AMOUNT OF RS.35,66,478/- IS A LOSS INCIDENTAL TO THE BUSINESS AND HENCE ALLOWABLE AS PER THE PROVISIONS OF SECTION 28 OF THE IT ACT, 1961. HENCE, I AM INCLINED TO DIRECT THE AO TO DELETE THE ADDITION MADE BY HIM AT RS.35,66,478/-. AGGRIEVED BY THIS ORDER OF LD. CIT(A) THE REVENUE I S IN APPEAL BEFORE THE TRIBUNAL. 6. THE LD. DR HEAVILY RELIED ON THE ORDER OF AO AND SUBMITTED THAT THE ASSESSEE HAD WRITTEN OFF RS.35,66,478/- ON ACCO UNT OF BALANCE WITH VISNAGAR NAGARIK SAHAKARI BANK LTD. WHICH WENT INTO LIQUIDATION. THE AMOUNT IN RESPECT OF THE SAID BANK APPEARING IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE WAS WRITTEN OFF BY THE ASSESSEE AND CL AIMED AS DEDUCTION U/S ITA NO. 1442 & 2180 ASST. YEAR 2003-04 5 28 AS THIS LOSS WAS INCIDENTAL TO THE BUSINESS. THE BUSINESS OF THE ASSESSEE WAS THAT OF EXECUTING THE PROJECTS OF ROADS, DAMS E TC. SO THE SAID LOSS COULD NOT BE SAID TO BE INCIDENTAL TO THE BUSINESS OF ASSESSEE AS IT DID NOT SPRING FROM THE BUSINESS. THE LOSS WAS ON ACCOUNT O F WRITING OFF AN ASSET AND THEREFORE, PARTAKES CHARACTER OF LOSS OF CAPITA L IN NATURE ACCORDINGLY, THE LOSS WAS DISALLOWED BY THE AO. THE LD. CIT(A) H AS NOT PROPERLY APPRECIATED THE FACTS OF THE CASE AND DELETED THE A DDITION. HIS ORDER MAY KINDLY BE SET ASIDE AND THAT OF THE AO BE RESTORED. 7. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSE E RELIED ON THE ORDER OF LD. CIT(A) AND SUBMITTED THAT THE ISSUE WHICH AR ISES WAS IN QUESTION OF ALIENABILITY OF THE IMPUGNED LOSS FOR ASSESSMENT YE AR 2003-04. SO FAR AS THIS MATTER IS CONCERNED, THE VISNAGAR CO-OP. BANK LTD. WAS DECLARED SICK VIDE NOTIFICATION ISSUED BY THE REGISTRAR OF CO-OP. SOCIETY, GUJARAT ON 13.8.2002. AFTER THE ISSUE OF THE SAID NOTIFICATION IT WAS NOT POSSIBLE FOR THE ASSESSEE TO RECOVER THE ABOVE AMOUNTS WHICH WER E LYING WITH THE BANK AS CAPITAL OF ITS TRADING ACCOUNTS. SINCE THE FUNDS/LIQUIDITY WAS LOST ON 13.08.2002 WHICH FELL IN THE FY 2002-03 I.E. ASS T. YEAR 2003-04 THE SAME IS CLEARLY ALLOWABLE AS CLAIMED BY THE ASSESSE E. HE FURTHER SUBMITTED THE ISSUE IS COVERED BY THE DECISIONS OF HONBLE SUPREME COURT IN THE CASE OF RAMCHANDAR SHIVNARAYAN VS. CIT (1978 ) 111ITR 263 (SC), INDIAN ALUMINIUM CO. LTD. VS. CIT 84 ITR 735 (SC) A ND TRAVANCORE ITA NO. 1442 & 2180 ASST. YEAR 2003-04 6 TITANIUM PRODUCT LTD. VS. CIT (1966) 60 ITR 277. TH EREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE IMPUGNED ADDITION. H IS ORDER MAY KINDLY BE UPHELD. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOIN G THROUGH MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THE ASSESSEE COM PANY WAS ENGAGED IN THE BUSINESS OF CONSTRUCTION OF ROADS, DAMS AND OTH ER GOVERNMENT PROJECTS. AS PER THE REQUIREMENT OF THE GOVERNMENT, THE ASSESSEE HAD TO ISSUE BANK GUARANTEE FOR COMPLETING PROJECTS AS PER THE QUALITY STANDARDS PRESCRIBED BY THEM. THE REQUIREMENT OF THE GOVERNME NT WAS TO HAVE BANK GUARANTEE FROM NATIONALIZED BANK OR FROM SCHED ULED BANK. DURING THE FY 2002-03 AND IN EARLIER YEARS THE ASSESSEE HA D AVAILED BANK GUARANTEE FACILITIES FROM VISNAGAR NAGRIK SAHAKARI BANK LTD. THE SANCTIONED LIMIT OF THE BANK GUARANTEE FACILITIES F ROM SAID BANK WAS RS.2 CRORES. AS PER THE PRESCRIBED NORMS OF THE SAID BAN K THE ASSESSEE HAD TO PURCHASE SHARES OF SAID CO-OP. BANK OF RS.15 LACS A ND HAD TO GIVE FIXED DEPOSIT OF RS.20 LACS AS MARGIN MONEY FOR USING A B ANK GUARANTEE BY SAID BANK. AT THE END OF THE YEAR 2002-03 THE BALANCE IN FIXED DEPOSIT WAS RS.20 LAKHS. AS PER NOTIFICATION ISSUED BY THE REGI STRAR OF CO-OP. SOCIETY, GUJARAT DURING THE YEAR UNDER ASSESSMENT, THE VISNA GAR CO-OP. BANK LTD. WAS DECLARED SICK BANK AND WAS NOT ALLOWED TO REPAY DEPOSITS TO THE DEPOSIT HOLDERS IN EXCESS OF RS.1000/-. THE MEMBERS HIP OF THE SAID BANK ITA NO. 1442 & 2180 ASST. YEAR 2003-04 7 WAS CANCELLED FROM CLEARING HOUSE AND CUSTODIAN WAS ALSO APPOINTED. THERE WAS NO POSSIBILITY OF RECOVERING THE FUNDS FR OM THE ABOVE BANK ACCORDINGLY, THE ASSESSEE COMPANY HAD WRITTEN OFF T HE BALANCES OF THE AMOUNT OF RS.35,66,478/-. IN OUR CONSIDERED VIEW TH E ASSESSEE GETS SUPPORT FROM THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAMCHANDAR SHIVNARAYAN VS. CIT (SUPRA) WHEREIN IT H AS BEEN HELD AS UNDER :- IF THERE IS A DIRECT AND PROXIMATE NEXUS BETWEEN T HE BUSINESS OPERATION AND THE LOSS OR IT IS INCIDENTAL TO IT, T HEN THE LOSS IS DEDUCTIBLE, AS, WITHOUT THE BUSINESS OPERATION AND DOING ALL THAT IS INCIDENTAL TO IT, NO PROFIT CAN BE EARNED. IT IS IN THAT SENSE THAT FROM A COMMERCIAL STANDARD SUCH A LOSS IS CONSIDERED TO BE A TRADING ONE AND BECOMES DEDUCTIBLE FROM THE TOTAL INCOME. I T IS TO BE REMEMBERED THAT THE DIRECT AND PROXIMATE CONNECTION AND NEXUS MUST BE BETWEEN THE BUSINESS OPERATION AND THE LOSS . SIMILAR VIEW HAS ALSO BEEN TAKEN BY THE HONBLE SUP REME COURT IN THE CASE OF INDIAN ALUMINIUM CO. LTD. VS. CIT (SUPRA) I N WHICH IT IS INTER ALIA HELD AS FOLLOWS :- THE TEST ADOPTED BY THE SUPREME COURT IN TRAVANCOR E TITANIUM PRODUCT LTD. VS. CIT (1966) 60 ITR 277 THAT TO BE A PERMISSIBLE DEDUCTION, THERE MUST BE A DIRECT AND INTIMATE CONN ECTION BETWEEN THE EXPENDITURE AND THE BUSINESS I.E. BETWEEN THE E XPENDITURE AND THE CHARACTER OF THE ASSESSEE AS A TRADER AND NOT A S OWNER OF THE ASSETS, EVEN IF THEY ARE ASSETS OF BUSINESS, NEEDS TO BE QUALIFIED BY STATING THAT IF THE EXPENDITURE IS LAID OUT BY THE ASSESSEE AS OWNER CUM TRADER, AND THE EXPENDITURE IS REALLY INCIDENTA L TO THE CARRYING ON HIS BUSINESS, IT MUST BE TREATED TO HAVING BEEN LAID OUT BY HIM AS A TRADER AND AS INCIDENTAL TO HIS BUSINESS. IN OUR OPINION THE RATIO OF THE ABOVE TWO DECISIONS OF THE HONBLE SUPREME COURT ARE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEE ITA NO. 1442 & 2180 ASST. YEAR 2003-04 8 COMPANY. THEREFORE, WE FIND NO INFIRMITY IN THE ORD ER OF LD. CIT(A) AND WE UPHOLD THE SAME. THE GROUND RAISED BY THE REVENU E IS DISMISSED. THE APPEAL FILED BY THE REVENUE IS DISMISSED. 9. SINCE WE HAVE CONFIRMED THE ORDER PASSED BY THE LD. CIT(A) DELETING THE ADDITION MADE BY THE AO IN PURSUANCE O F ORDER DATED 31.12.2007 PASSED BY LD. CIT U/S 263 OF THE ACT, TH E APPEAL OF ASSESSEE AGAINST THE ORDER U/S 263, HAS BECOME INFRUCTUOUS A ND DISMISSED AS SUCH. 10. IN THE RESULT, BOTH THE APPEALS ONE FILED BY T HE REVENUE AND THE OTHER BY THE ASSESSEE ARE DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 9/12/11. SD/- SD/- (A. K. GARODIA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ITA NO. 1442 & 2180 ASST. YEAR 2003-04 9 1.DATE OF DICTATION 01/12/2011. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER.OTHER MEMBER 7/12/2011 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..