Kartik Estate, Baroda V. The Income tax Officer,Wad-2(1), Baroda

ITA 1445/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80544 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 14-11-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 20-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K SINGHSR
• Assessee Lawyers: SUNIL H TALATI
• Section: 143(3); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD , , BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.1445/AHD/2011 ( / ASSESSMENT YEAR : 2005-06) M/S.KARTIK ESTATE C/O. DAXESH B.PATEL 17, SHREEJI SOCIETY MANJALPUR, BARODA-390010 / VS. THE INCOME TAX OFFICER WARD-2(1) BARODA ' ./ ./ PAN/GIR NO. : AAFFK 1384 C ( '% / APPELLANT ) .. ( &''% / RESPONDENT ) '%( / APPELLANT BY : SHRI SUNIL H.TALATI &''%)( / RESPONDENT BY : SHRI M.K.SINGH,SR.DR *) / DATE OF HEARING 14/11/2014 +,-.) / DATE OF PRONOUNCEMENT 28/11/2014 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-II, BARODA (CIT(A) IN SHORT) DATED 06/01/2011 PERTAINING TO ASSESSMENT YEAR (AY) 2005-06. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1) THE ORDER PASSED BY THE LEARNED CIT(APPEAL) NOT AD JUDICATING GROUNDS OF APPEAL NO.1 & 2 STATING THAT THEY ARE GE NERAL IN NATURE IS BAD IN LAW. THE SAME IS PASSED WITHOUT CONSIDERING THE FACTS AND DETAILS SUBMITTED BY YOUR APPELLANT AND HENCE SAME BE QUASHED. 2) THE LEARNED CIT IS NOT JUSTIFIED IN CONFIRMING DISA LLOWANCE MADE BY THE ASSESSING OFFICER U/S.40(A)(IA) OF INCOME TAX A CT IN RESPECT OF ITA NO.1445 /AH D/2011 M/S. KARTIK ESTATE VS. ITO ASST.YEAR 2005-06 - 2 - TDS DEDUCTED IN MARCH, 2005 AND PAID BEFORE DUE DAT E OF FURNISHING RETURN OF INCOME U/S.139(1) OF INCOME TA X ACT. YOUR APPELLANT CRAVES FOR LEAVE TO ALTER/WITHDRAW/A MEND/MODIFY ANY OF THE GROUNDS OF APPEAL EITHER BEFORE OR AT TH E TIME OF APPEAL. 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE A SSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 31/12/2007, THEREBY THE ASSESSING OFFICER (AO IN SHORT) MADE DISALLOWANCE OF THE LOSS AND ALSO MADE DISALLOWANCE U/S.40(A)(IA) OF THE ACT AMOUNTING TO RS.4,43,287/-. AGAINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS DISMISSED THE APPEAL. NOW, THE ASSESSEE IS FURTHE R IN APPEAL BEFORE US. 3. GROUND NO.1 IS AGAINST NON-ADJUDICATION OF GROUN D NOS.1 & 2 OF THE APPEAL BY HOLDING THAT THE SAME ARE GENERAL IN NATURE. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND N O.1 WAS AGAINST THE ORDER OF THE AO BEING BAD IN LAW AND GROUND NO.2 WA S AGAINST THE DISALLOWANCE OF THE EXPENDITURE INCURRED DURING THE YEAR AS NO BUSINESS IS DONE BY THE ASSESSEE. THE LD.COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE AUTHORITIES BELOW HAVE NOT CONSIDERED THE SUBMISSIO NS OF THE ASSESSEE AND THEREBY CAUSED GROSS MISCARRIAGE OF JUSTICE. H E SUBMITTED THAT, BEFORE THE LD.CIT(A) THE ASSESSEE HAS SPECIFICALLY SUBMITTED THAT IN THE APPELLANTS CASE FOR AY 2007-08 SELECTED FOR SCRUTI NY AND THE RETURN OF THE INCOME OF THE ASSESSEE WAS ACCEPTED. THE LD.CO UNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD EXPLAINED VIDE LETT ER DATED 28/12/2007 THAT IN ORDER TO CARRY OUT THE BUSINESS ACTIVITY, T HE PURCHASE OF PROPERTY ITA NO.1445 /AH D/2011 M/S. KARTIK ESTATE VS. ITO ASST.YEAR 2005-06 - 3 - RIGHTS IN LAND AND HELD THE SAME AS STOCK-IN-TRADE FOR THE PURPOSE OF RESALE IN FUTURE IS STARTING POINT OF COMMENCEMENT OF BUSINESS OF THE ASSESSEE. RELIANCE WAS PLACED ON THE DECISION OF H ONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. SAURASTRA CEM ENT & CHEMICAL CO.LTD. REPORTED AT (1973) 91 ITR 170 (GUJ.). THE LD.COUNSEL FOR THE ASSESSEE HAD ALSO RELIED ON THE JUDGEMENT OF THE HO NBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF CIT VS. SPECIALTY PAP ER LTD. REPORTED AT (1982) 133 ITR 879(GUJ.). IN SUPPORT OF THIS CONTE NTION, ONCE THE RIGHTS HAVE BEEN ACQUIRED IN THE PROPERTY, THE ASSESSEE HA D COMMENCED THE BUSINESS AND, THEREFORE, THE LOSS CLAIMED OUGHT TO HAVE ALLOWED. HE SUBMITTED THAT THE LD.CIT(A) HAS NOT ADJUDICATED TH E GROUNDS RAISED BY THE ASSESSEE. 3.1. ON THE CONTRARY, THE LD.SR.DR SUPPORTED THE OR DERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ORDER OF T HE LD.CIT(A) IS JUSTIFIED. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT IN FORM NO.35, THE ASSESSEE HAD RAISED GROUND NOS.1 & 2 BEFORE THE LD.CIT(A) WHICH ARE REPRODUCED BELOW:- 1) THE ORDER PASSED BY THE ASSESSING OFFICER U/S. 143(3) OF INCOME TAX ACT IS BAD IN LAW. 2) THE ADDITION MADE BY THE ASSESSING OFFICER TO THE RETURN INCOME (LOSS) BY DISALLOWING ALL EXPENSES INCURRED DURING THE YEAR AS NO BUSINESS IS DONE IS NOT CORRECT AND ADDI TION MADE ON THIS ACCOUNT BE DELETED. ITA NO.1445 /AH D/2011 M/S. KARTIK ESTATE VS. ITO ASST.YEAR 2005-06 - 4 - 4.1. THE ASSESSEE, BEFORE THE LD.CIT(A), HAS MADE F OLLOWING SUBMISSION IN RESPECT OF THE ABOVE GROUNDS:- THE APPELLANT IS PARTNERSHIP FIRM FORMED BY PARTNER SHIP DEED DATED 14.07.2002. IN CLAUSE (2) OF PARTNERSHIP DEED THE NATURE OF BUSINESS TO BE CARRIED BY ON BY FIRM WAS SPECIFIED. THE FIRM IS DOING BUSINESS OF PURCHASE OF LAND, PRO PERTY RIGHTS IN LAND, CONSTRUCTION ETC. DURING FINANCIAL YEAR 2004-05 (A.Y. 2005-06) THE APPELLANT HAD UNDERTAKEN LAND DEVELOPMENT WORK AND SPENT SUM OF RS. 490034/- TOWARDS PURCHASE OF BUILDING MATERIAL AND LABOUR CHARGES. DURING THE YEAR, THE APPELLANT HAD RETURNED A SUM OF RS. 2 70300/-TOWARDS PURCHASE RETURN ON CANCELLATION OF BANAKHAT AND THE SAME WAS DEDUCTED FROM LAND DEVELOPMENT COST OF RS.490034/-. THE NET ADDITION I N PROPERTY RIGHT IS RS. 219734/-. THE APPELLANT HAD ADDED THIS DIRECT EXPEN SE IN OPENING STOCK AND CLOSING STOCK AS UNDER : OPENING STOCK OF PROPERTY RIGHT IN LAND 8046661/- ADD : LAND DEVELOPMENT EXPENSE OF SURVEY NO. 442/1/A AT TARSALI 490034/- -------------- 8536695/- LESS : PURCHASE RETURN CANCELLATION OF BANAKHAT AT SURVEY NO. 442/1/B 270300/- ------------- CLOSING STOCK AS ON 31.03.2005 8266395/- ======= THE ASSESSEE HAD EXPLAINED THE SAME IN PARA(1) OF O UR LETTER DATED 23.11.2007. COPY OF THE SAME IS ENCLOSED HEREWITH ALONG WITH ANNEXUR ES. ALSO VIDE SUBMISSION DATED 28.12.2007 THE APPELLANT HAD EXPLAINED IN DETAIL TH AT IN ORDER TO CARRY OUT THE BUSINESS ACTIVITY, THE PURCHASE OF PROPERTY RIGHTS IN LAND AND HELD THE SAME AS STOCK IN TRADE FOR THE PURPOSE OF RESELL IN FUTURE IS STA RTING POINT OF COMMENCEMENT OF BUSINESS OF THE ASSESSEE. THE ASSESSEE IS RELYING O N THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF CIT V/S. SAURASTRA CEMENT & CH EMICAL CO.LTD. (1973) 91 ITR 170 (GUJ.) 'IN THIS CASE, THE ASSESSEE WAS ENGAGED IN THE BUSI NESS OF MANUFACTURE AND SALE OF CEMENT AND THE ACTIVITIES WHICH CONSTITUTED THE BUSINESS WAS DIVISIBLE INTO THREE CATEGORIES. (1) ACTIVITY OF EXTRACTION OF LIME STONE BY Q UARRYING LEASE AREA OF LAND, IT WAS HELD THAT THE ASSESSEE COMMENCED ITS BUSINESS WHEN IT STARTED THE ACTIVITY OF EXTRACTION OF LIME STONE.' ITA NO.1445 /AH D/2011 M/S. KARTIK ESTATE VS. ITO ASST.YEAR 2005-06 - 5 - THE ASSESSEE IS ALSO RELYING OF JUDGMENT OF CIT V/S . SPECIALITY PAPER LTD. (1982) 133 ITR 879 (GUJ.). IN THIS CASE, THE ASSESSEE WAS ENGA GED IN THE MANUFACTURE OF SPECIFIC QUALITY OF PAPER HAD ACQUIRED ALL THE PLANTS AND MA CHINERY AND SUBSTANTIAL QUANTITY OF RAW MATERIAL NECESSARY FOR MANUFACTURE OF RAW MA TERIAL BY END OF JUNE 1966. HOWEVER, THE TRIAL PRODUCTION WHICH FOLLOWED THEREA FTER SOUGHT THAT UNLESS A SPECIFIC PLANT WAS PUT UP, THE ASSESSEE WILL NOT BE ABLE TO PRODUCE THAT SPECIAL KIND OF PAPER. THE COURT HELD THAT THE ASSESSEE COULD BE SAID TO C OMMENCE OR SET UP ITS BUSINESS IN JUNE - 1966. SO, IN THE CASE OF APPELLANT WHO HAD COMMENDED ITS BUSINESS DURING FINANCIAL YEAR 2002-03 ONWARDS. DURING FINANCIAL YEAR 2004-05, THE APPELLANT HAD UNDERTAKEN LAND DEVELOPMENT WORK AND SPENT A SUM OF RS. 490034/- TO WARDS PURCHASE OF BUILDING MATERIAL AND LABOUR CHARGES. ALSO, DURING THE FINAN CIAL YEAR 2004-05 THE APPELLANT HAD RETURNED A SUM OF RS. 270300/- ON CANCELLATION OF BANAKHAT AND THE SAME WAS DEDUCTED FROM LAND DEVELOPMENT COST OF RS.490034/-. THE NET ADDITION IN PROPERTY RIGHT IN LAND DURING THE YEAR IS RS. 219734/-. IN ORDER TO CARRY OUT THE BUSINESS, THE APPELLANT H AD TAKEN UNSECURED LOAN IN EARLIER FINANCIAL YEAR AND PROVIDED INTEREST IN THE BOOKS O F ACCOUNTS AND CLAIMED THE SAME AS DEDUCTION U/S 36(I)(III) OF INCOME TAX ACT. ALSO, D URING THE FINANCIAL YEAR, THE APPELLANT HAD INCURRED THE ADMINISTRATIVE EXPENSE A S UNDER : BANK CHARGES RS. 1479/- ACCOUNT WRITING FEES RS. 2000/- OFFICE EXPENSE RS. 9360/- SALARY TO STAFF RS. 24000/- ---------------- TOTAL RS. RS. 36839/- THE APPELLANT HAD CLAIMED THE ABOVE EXPENSE U/S. 37 OF INCOME TAX ACT. ALSO, THE ASSESSEE HAD PROVIDED INTEREST ON PARTNERS CAPITAL OF RS. 119448/- AND CLAIMED THE SAME AS DEDUCTION U/S 40(B)(IV) OF INCOME TAX ACT. IN VIEW OF THE ABOVE, THE CLAIM MADE BY THE ASSESSE E UNDER THE HEAD BUSINESS AND PROFESSION OF RS.443287/- IS CORRECT AND THE ASSESS EE SHOULD BE ALLOWED TO CARRIED FORWARD LOSS ALONG WITH BROUGHT FORWARD LOSS OF EAR LIER YEAR. A.Y RS. 2003-04 90744/- 2004-05 367703/- THE APPELLANTS CASE OF A.Y. 2007-08 WAS SELECTED FO R SCRUTINY AND THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(2) OF BARODA HA D IN PARA (2) OF ASSESSMENT ORDER ON PAGE 2 STATED AS UNDER : 'THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN PROPERTY RIGHTS OF LAND. DURING THE YEAR UNDER ACCOUNT AND IN THE IMMEDIATELY PRECE DING YEAR THE ASSESSEE HAD NOT ITA NO.1445 /AH D/2011 M/S. KARTIK ESTATE VS. ITO ASST.YEAR 2005-06 - 6 - SHOWN ANY SALES AND INCURRED LOSS OF RS. 1023428/- AND RS. 660311/- RESPECTIVELY. AFTER DISCUSSION AND FROM THE DATA AVAILABLE THE CL AIM OF ASSESSEE IS ACCEPTED AS UNDER : TOTAL LOSS AS PER STATEMENT 1023430/- FROM THE ABOVE, YOUR HONOR CAN VERY WELL ASCERTAINE D THAT THE VIEW TAKEN BY THE ASSESSING OFFICER IN A.Y. 2005-06 IS NOT CORRECT AN D WE REQUEST YOUR HONOR TO ALLOW THE EXPENSES CLAIMED BY THE ASSESSEE IN FULL AND AL LOW IT TO CARRY FORWARD THE LOSS. ALSO NOTE THAT IN F.Y. 2007-08 (A.Y. 2008-09) THE A PPELLANT HAD SOLD ALL THE STOCK OF PROPERTY RIGHTS IN LAND ACQUIRED UPTO 31.03.2006. T HE SAME WAS REFLECTED IN ANNUAL ACCOUNTS OF FINANCIAL YEAR 2007-08 (A.Y.2008-09). T HE ASSESSEE HAD EARNED PROFIT OF RS.4924829/- AND AFTER ADJUSTING BROUGHT FORWARD LO SS OF EARLIER YEARS OF RS.2585474/- HAD PAID THE TAX ON BALANCE AMOUNT OF RS.2339360/-. COPY OF COMPUTATION OF INCOME ALONG WITH ACKNOWLEDGEMENT OF RETURN FILED OF A.Y. 2008-09 IS ENCLOSED HEREWITH. IN VIEW OF THE ABOVE WE REQUEST YOUR HONOR TO CONSIDER OUR ABOVE SUBMISSION AND ALLOW THE APPELLANTS CLAIM IN THIS R ESPECT. 4.2. FROM THE ORDER OF THE LD.CIT(A), IT IS EX-FACI E EVIDENT THAT THE SUBMISSIONS OF THE ASSESSEE WERE NOT CONSIDERED. I N OUR CONSIDERED VIEW, THE LD.CIT(A) OUGHT TO HAVE ADVERTED TO THE SUBMISS IONS OF THE ASSESSEE AND PASSED A SPEAKING ORDER. THEREFORE, THE ORDER OF THE LD.CIT(A) IS HEREBY SET ASIDE AND GROUND NO.1 OF ASSESSEES APPE AL IS RESTORED BACK TO THE FILE OF LD.CIT(A) FOR DECISION AFRESH BY WAY OF A SPEAKING ORDER. NEEDLESS TO SAY THAT THE LD.CIT(A) WOULD GRANT SUFF ICIENT OPPORTUNITIES OF HEARING TO BOTH THE PARTIES. THUS, GROUND NO.1 OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 5. GROUND NO.2 IS AGAINST IN CONFIRMING DISALLOWANC E MADE BY THE AO U/S.40(A)(IA) OF INCOME TAX ACT IN RESPECT OF TD S DEDUCTED IN MARCH, 2005 AND PAID BEFORE DUE DATE OF FURNISHING RETURN OF INCOME U/S.139(1) OF INCOME TAX ACT. THE LD.COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE AO HAS ERRED IN INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF ITA NO.1445 /AH D/2011 M/S. KARTIK ESTATE VS. ITO ASST.YEAR 2005-06 - 7 - THE ACT. HE SUBMITTED THAT IN THE ASSESSMENT ORDER THE AO VIDE PARA NO.4.2 HAS OBSERVED THAT THE ASSESSEE-FIRM HAS DEDU CTED TAX ON THE PAYMENT OF RS.2,16,000/- AND DEPOSITED THE SAME INT O THE GOVERNMENT ACCOUNT BEYOND TIME. THE AO OBSERVED THAT THE AS SESSEE-FIRM HAS PAID AN AMOUNT OF RS.1,08,000/- TO M/S.RAMJKI HARI AND R S.1,08,000/- TO SHRI ASHOKBHAI RAMJIBHAI AGGREGATING TO RS.2,16,000/- TO WARDS INTEREST ON UNSECURED LOAN AVAILED FROM THEM. IT IS ALSO OBSER VED BY THE AO THAT THE ASSESSEE HAS NOT RAISED ANY OBJECTION AGAINST THE D ISALLOWANCE MADE U/S.40(A)(IA) OF THE ACT. THE LD.COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE HAS, IN FACT, RAISED AN OBJECTION AGAI NST SUCH DISALLOWANCE. HE FURTHER SUBMITTED THAT THE LD.CIT(A) HAS CONFIRM ED THE ADDITION MADE BY THE AO ON THE BASIS THAT THE PAYMENTS TO THE PAR TIES WERE MADE AFTER 31/03/2005 AND THERE IS NO EVIDENCE OF DEDUCTION OF TAX PRIOR TO 31/03/2005. HE SUBMITTED THAT THE LD.CIT(A) ERRE D IN OBSERVING THAT ENTRIES IN THE ACCOUNTS ARE SELF-SERVING NOT SUPPOR TED BY ANY VERIFIABLE EVIDENCE. THE LD.COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL (ITAT BENCH D AHMEDABAD) RENDERED IN THE CASE OF M/S.VASTU BUILDERS VS. ITO IN ITA NO.3995/AHD/2008 FOR AY 2005-06, ORDER DATED 26/08/ 2011. 5.1. ON THE CONTRARY, LD.SR.DR SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW. 5.2. IN REJOINDER, THE LD.COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION TOWARDS THE BANK STATEMENT OF THE APPELLANT SHOWING THE INTEREST PAYMENT AS WELL AS TDS PAYMENT MADE PLACED AT PAGE NOS.24 & 25 OF THE PAPER- BOOK. ITA NO.1445 /AH D/2011 M/S. KARTIK ESTATE VS. ITO ASST.YEAR 2005-06 - 8 - 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. AFTER CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, THIS ISSUE IS ALSO RESTORED BACK TO THE FILE OF LD.CIT(A) FOR VERIFICA TION OF CLAIM OF THE ASSESSEE THAT THE TDS WAS DEDUCTED PRIOR TO 31/03/2 005 AND DEPOSITED IN THE GOVERNMENT ACCOUNT PRIOR TO DUE DATE OF FILING OF RETURN AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. THUS, THIS GROUN D OF ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 28 TH DAY OF NOVEMBER, 2014 AT AHMEDABAD. SD/- SD/- ( ) ( ) ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 28/11/2014 2..,.../ T.C. NAIR, SR. PS !'#$%&' &$ / COPY OF THE ORDER FORWARDED TO : 1. '% / THE APPELLANT 2. &''% / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-II, BARODA 5. 78& 45 , 45. , 3 / DR, ITAT, AHMEDABAD 6. 8:; * / GUARD FILE. ! / BY ORDER, '7 & //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD