The Assistant Commissioner of Income Tax,Circle-6, Nagpur V. The Nirmal Ujjwal Credit Co-Operative Society Limited, Nagpur

ITA 162/NAG/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5862 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 12-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRITI JAIN DAS
• Assessee Lawyers: M MANI
• Keywords: Depreciation; Source of fund; Revised return

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL-E -BENCH, NAGPUR ( !' ' # ' /THROUGH VIDEO CONFERENCE AT MUMBAI) $ $ $ $ % %% % & && & . . , #' #' #' #' % %% % (')* (')* (')* (')* , ' '' ' . . BEFORE S/SH.H.L.KARWA,PRESIDENT AND RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.162/NAG/2011 $ $ $ $ +$ +$ +$ +$ / ASSESSMENT YEAR 2008-09 ACIT CIR-6,ROOM NO. 402, AAYAKAR BHAWAN, CIVIL LINES, NAGPUR-440001 VS. THE NIRMAL UJJWAL CREDIT CO- OPERATIVE SOCIETY LTD. 193 MAIN ROAD, NANDANWAN, NAGPUR-440009 PAN: AAAAT6554H ( ,- / APPELLANT ) ( ./,- / RESPONDENT ) REVENUE BY : PRITI JAIN DAS ASSESSEE BY : M. MANI 01 / DATE OF HEARING : 21- 01 -201 4 2+ 01 /DATE OF PRONOUNCEMENT : 12 -02-201 4 , 1961 254 )1( ' '' ' )0$0 )0$0 )0$0 )0$0 3'4 3'4 3'4 3'4 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM - ' ' ' ' 35 35 35 35 , (')* (')* (')* (')* ' '' ' : CHALLENGING THE ORDER DATED 14.09.2011 OF THE CIT(A )-II,NAGPUR ASSESSING OFFICER(AO) HAS FILED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LEARNED CIT(APPEALS) FAILED TO APPRECIATE THE ISSUE RAISED IN THE ASSESSMENT ORDER WITH REGARD TO THE INCLUSION OF INTEREST ACTUALLY PAID ON FUNDS DEPLOYED BY THE SOCIETY IN THE WORK-I N-PROGRESS OF THE PROJECT UNDERTAKEN BY IT AND PROCESSED TO DECIDE THE CASE ON IRRELEVANT CONSIDER ATION. 2.ON THE FACTS IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(APPEALS) OUGHT TO HAVE HELD THAT THE INTEREST PAID BY THE SOCIETY ON FUNDS UTILIZED FOR THE PURPOSE OF THE PROJECT WAS INCLUDIBLE IN THE WORK-IN-PROGRESS OF THE PROJECT I N ACCORDANCE WITH THE DECISION OF THE HONBLE SPECIAL BENCH OF ITAT MUMBAI IN THE CASE OF WALL ST REET CONSTRUCTION LTD. (101 ITD 156). 3.ANY OTHER GROUND THAT MAY BE RAISED AT THE TIME OF HEARING. 2. ASSESSEE-SOCIETY,FILED ITS RETURN OF INCOME ON 30.0 9.2009 DECLARING GROSS TOTAL INCOME OF RS. 1.31 CRORES.IT CLAIMED A DEDUCTION U/S. 80P OF THE ACT FOR THE SAME AMOUNT THAT RESULTED IN NIL INCOME.SUBSEQUENTLY,IT REVISED ITS RETURN OF INCOME ON 30.03.2010. IN THE COMPUTATION OF INCOME APART FROM THE ADJUSTMENT MADE IN THE ORIGINAL COMP UTATION,ASSESSEE-SOCIETY CLAIMED A FURTHER DEDUCTION OF RS. 3.62 CRORES ON ACCOUNT OF INTEREST ON DEPOSIT OF NIRMAL NAGRI PROJECT (NNP). AS PER THE ASSESSEE IT WAS CONSIDERED WRONGLY AS INCOM E.AS A RESULT, TOTAL INCOME RETURNED BY THE ASSESSEE WAS A LOSS OF RS.1.67 CRORES. IT WAS FURTH ER STATED BY THE ASSESSEE THAT IT HAD NOT CLAIMING DEPRECIATION AS WELL AS DEDUCTION U/S.80P OF THE AC T.HOWEVER,A CLAIM FOR CARRYING FORWARD LOSS OF RS.1.67 CRORES WAS MADE BY THE SOCIETY IN THE REVIS ED RETURN. WITH REGARD TO THE CLAIM OF DEDUCTION OF RS. 3.62 C RORES,AO FOUND THAT ASSESSEE HAD UNDERTAKEN CONSTRUCTION OF REAL ESTATE PROJECT AND THE INTERES T WAS RELATABLE TO THE SAID PROJECT, THAT IN THE BOOKS OF ACCOUNTS ASSESSEE HAD CREDITED RS. 3.62 CR ORES AND 2.24 CRORES ON ACCOUNT OF INTEREST ON DEPOSIT AND INCOME OF WORK-IN-PROGRESS (WIP) RESPEC TIVELY, THAT ASSESSEE HAD DEPLOYED FUNDS OF THE SOCIETY TO THE TUNE OF RS. 36 CRORE IN THE NNP, THAT IT BOOKED RECEIPTS OF ONLY RS. 4.6 CRORES. IN THE EXPLANATION FILED BY THE ASSESSEE;IN RESPONS E TO THE DIRECTIONS ISSUED BY THE AO;IT WAS 2 ITA NO. 162/NAG/2011 NIRMAL UJJWAL CREDIT CO-OP. SOCI ETY LTD. SUBMITTED THAT SOCIETY HAD FINANCED/ADVANCED MONEY FOR THE PURPOSE OF DEVELOPING/CONSTRUCTING NNP,THAT IT HAD CHARGED INTEREST ON ACCRUAL BASIS,T HAT SAME WAS RECOGNISED AS INCOME IN THE RETURN OF INCOME ORIGINALLY FILED, THAT WHILE CONSOLIDATIN G THE ACCOUNTS OF THE SOCIETY AND NNP SAID INCOME WAS NOT SET OFF AS IN THE ACCOUNTS OF NNP,TH AT THE AMOUNT HAD NOT BEEN CLAIMED AS EXPENSES BUT WAS SHOWN AS A PART OF WIP, THAT IN TH E REVISED RETURN CLAIMED FOR DEDUCTION WAS MADE IN RESPECT OF THE INTEREST EXPENSES WHICH SHOU LD HAVE BEEN CHARGED IN THE ACCOUNTS OF NNP,THAT WHILE FINALISING/CONSOLIDATING ACCOUNTS TH E INTEREST SHOULD HAVE BEEN NULLIFIED IN THE CONSOLIDATED PROFIT & LOSS ACCOUNT,THAT BY MISTAKE THIS WAS NOT DONE.AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,AO HELD THAT THE CLAIM M ADE BY THE ASSESSEE WAS NOT JUSTIFIED,THAT THE INTEREST WAS PART OF THE WIP OF THE NNP.ACCORDINGLY ,THE CLAIM OF THE ASSESSEE WITH REGARD TO DEDUCTION OF RS.3.62 CRORES WAS REJECTED. 2.2. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY(FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R HE HELD THAT THE ASSESSEE-CREDIT CO- OPERATIVE SOCIETY,THAT THE ASSESSEE HAD FILED A REV ISED RETURN OF INCOME AS THE INCOME FROM THE HOUSING PROJECT WAS NOT DETERMINED IN ACCORDANCE WI TH THE ACCOUNTING STANDARD 16 PRESCRIBED BY THE ICAI,THAT THE HOUSING PROJECT WAS MEANT FOR THE MEMBERS OF THE SOCIETY ONLY,THAT THE ASSESSEE WAS UNDER OBLIGATION TO DETERMINE THE PROFIT/LOSS F ROM THE AS PER NORMAL ACCOUNTING PRINCIPLES,THAT AN AMOUNT OF RS.30,23,66,079/-WAS DIVERTED FROM THE FINANCIAL SECTOR OF THE ASSESSEE AND INTEREST ON THAT AMOUNT WAS TAKEN INTO ACCOUNT AS INTEREST- INCOME, IN THE PROFIT AND LOSS ACCOUNT,THAT THE ASSESSEE HAD WORKED OUT THE INCOME OF THE TWO SEPAR ATE BUSINESSES I.E. INCOME FROM THE FINANCIAL SECTOR AND INCOME FROM HOUSING SECTOR,THAT IN THE R EVISED RETURN BOTH THE SOURCES OF INCOME WERE CONSIDERED,THAT FOLLOWING THEGOING CONCERN PRINCI PLE AND AAS-16 THE INCOME COMPUTED AS PER THE REVISED RETURN WAS THE CORRECT APPROACH AND SAM E WAS IN ACCORDANCE WITH THE LEGAL PRINCIPLES. FINALLY, CONSIDERING THE ENTIRETY OF FACTS OF THE CASE ADDITION MADE BY THE AO;ON ACCOUNT OF TAKING RS.3,62,83,929/-AS INTEREST INCOME FROM THE HOUSING-PROJECT;WAS DELETED BY THE FAA.HE FURTHER DIRECTED THE AO TO TAKE ONLY THE NET INCOME OF HOUSING ACTIVITY SHOWN IN REVISED RETURN FOR COMPUTATION OF OVERALL INCOME. 2.3. BEFORE US,DEPARTMENTAL REPRESENTATIVE(DR)SUBMITTED THAT INTEREST PAID ON FUNDS DEPLOYED BY THE SOCIETY IN THE WORK-IN-PROGRESS OF THE PROJECT UNDERTAKEN BY WAS GIVEN CORRECT TREATMENT BY THE AO IN ACCEPTING THE ORIGINAL RETURN,THAT IN THE REVISED RETURN ASSESSEE HAD DISTORTED THE FIGURE OF ITS INCOME.AUTHORISED REPRESENTATIVE(AR)SUBMITTE D THAT THE COMPUTATION OF INCOME BY AO WAS AGAINST THE PRINCIPLES OF ACCOUNTANCY AS WELL A S THE PRINCIPLES OF INCOME TAX LAW,THAT THE CREDIT MADE BY THE ASSESSEE,IN PROFIT AND LOSS A/C. ,OF RS.36,62,83,929/- AS THE INCOME RECEIVED FROM THE HOUSING SECTOR WAS ITSELF A WRONG ENTRY,TH AT THERE COULD BE NO PROFIT/LOSS FROM THE FINANCIAL SECTOR WITHOUT WORKING OUT THE PROFIT/LOS S OF HOUSING SECTOR,THAT AO HAD IGNORED THE BASIC PRINCIPLE OF TAXATION THAT NO ONE CAN DERIVE PROFIT BY TRADING WITH HIMSELF.HE RELIED UPON THE CASES OF ROYAL WESTERN INDIA TURF CLUB LTD.(24ITR55 1)KIKABHAJ PREMCHAND (24ITR 506) SHROOJI VALABHDAS & CO.(46 ITR 144), MARVI INDUSTR IES LTD.(82 ITR 835),BIRLA GWALIOR P.LTD. (89 ITR 266)SUTHAJ COTTON MILLS LTD.(116ITR1),GODHR A ELECTRICITY CO.LTD.(225ITR746),FEROZP - UR FINANCE P.LTD. (124 ITR 619)AND MOTOR CREDIT CO. P.LTD.(127 ITR 572). 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT FOR THE CONSTRUCTION ACTIVITY ASSESSEE HAD UTILISED PART OF ITS OWN FUND AND HAD NOT MADE ANY SEPARATE EXTERNAL BORROWINGS FOR THAT PURPOSE,THAT THE AO HA D ALSO NOT DENIED THIS FACT.IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS FOLLOWING AN ACCOUNTING METHO D THAT IS APPROVED BY THE ICAI.AS PER THE PROVISIONS OF THE ACT,FOR DETERMINING THE TAX LIABI LITY OF AN ASSESSEE,INCOME ARISING OR ACCRUING TO HIM FROM ALL THE SOURCES,IN A PARTICULAR YEAR,HAS T O BE CONSIDERED.IF ANY OF THE SOURCES OF INCOME IS LEFT IT WILL RESULT IN GIVING DISTORTED PICTURE AND FROM SUCH ACCOUNTS CORRECT TAX CANNOT BE DETERMINED.IT IS TRUE THAT ASSESSEE ARE SUPPOSED TO DETERMINE THEIR INCOME IN PROPER MANNER AND ONLY THEN FILE THEIR RETURNS OF INCOME.BUT,IF DUE T O SOME INADVERTENT AND BONA FIDE MISTAKE ASSESSEE FILES A RETURN THAT IS PRIMA FACIE CONTRAR Y TO THE PRINCIPLES OF ACCOUNTANCY AND PROVISIONS 3 ITA NO. 162/NAG/2011 NIRMAL UJJWAL CREDIT CO-OP. SOCI ETY LTD. OF THE ACT,IT HAS TO BE REVISED.IN THE CASE UNDER C ONSIDERATION ASSESSEE FILED A RETURN THAT WAS NOT AS PER THE PROVISIONS OF TAXATION PRINCIPLES AS IT DID TAKE IN TO COUNT THE INCOME THAT HAD ARISEN FROM ALL THE SOURCES DURING THE YEAR.ONCE THE ASSES SEE CAME TO KNOW ABOUT THE MISTAKE COMMITTED BY IT,A REVISED RETURN WAS FILED.HERE WE WOULD LIKE TO REPRODUCE THE COMPUTATION OF INCOME AS PROVIDED IN THE REVISED RETURN OF INCOME : PROFIT/LOSS FROM FINANCIAL ACTIVITY (RS. 87, 70,779/-) PROFIT/LOSS FROM CONSTRUCTION ACTIVITY (RS. 1, 20,25,409/-) DEPRECIATION DEBITED TO P & L A/C. (RS. 37,61, 298/-) GRATUITY ( RS. 2,09,469/-) DONATION (RS. 4,500/-) FRINGE BENEFIT TAX (RS. 64,935/-) TOTAL (RS 1,67,55,986/-) IN OUR OPINION THAT THE REVISED RETURN FILED BY THE ASSESSEE WAS IN ACCORDANCE WITH THE PROVISIONS OF THE INCOME TAX ACT AND IT IS A VALID RETURN,THAT DETERMINATION OF INCOME BY THE AO RELYING ON THE ORIGINAL RETURN WAS NOT PROPER,THAT IN THE REVI SED RETURN ASSESSEE HAD RIGHTLY SHOWN THE INCOME FROM BOTH THE ACTIVITIES THAT WERE UNDERTAKEN BY IT IN THE YEAR UNDER APPEAL,THAT THE REVISED RETURN WAS GIVING THE CORRECT PICTURE OF THE INCOME OF THE ASSESSEE AND SHOULD HAVE BEEN ACCEPTED,THAT INTEREST PAID BY THE SOCIETY ON FUNDS UTILISED FOR THE PURPOSE OF THE PROJECT WAS NOT INCLUDIBLE IN THE WORK-IN-PROGRESS OF THE PROJECT,THAT WHILE FINA LISING THE ASSESSMENT AO HAS TO TAKE INCOME FROM ALL THE SOURCES. WHILE DECIDING THE APPEAL FILED BY THE AO FOR THE A Y.2009-10(ITA/362/NAG/2012)WE HAVE DISCUSSED IN LENGTH AS HOW THE INCOME OF THE ASSESS EE-SOCIETY SHOULD HAVE BEEN COMPUTED WHEN IT WAS FOUND THAT IT WAS CARRYING OUT TWO ACTIVITIES I .E.FINANCE AND CONSTRUCTION.WE HAVE RELIED UPON THE PRINCIPLE PROPOUNDED BY THE HONBLE APEX COURT THAT ONE CANNOT EARN PROFIT FORM HIMSELF.IN THAT APPEAL WE HAVE HELD THAT THE CASE REFERRED TO BY THE AO IN THE GROUNDS OF APPEAL I.E.WALL STREET CONSTRUCTION LTD.(101 ITD 156)WAS NOT APPLIC ABLE TO THE FACTS OF THE CASE.GROUNDS OF APPEAL NO.1-2 ARE DECIDED AGAINST THE AO. GROUND NO.3 IS GENERAL IN NATURE AND DOES NOT REQUI RE ADJUDICATION. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . 6 07 $60 1 8 39 (: (0 ; . ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY,2014. 3'4 2+ ' ) 12 <1 , 2014 . SD/- SD/- (H.L.KARWA/ & && & . . ) ( (')* (')* (')* (')* / RAJENDRA) PRESIDENT/ #' ' ' ' ' 35 35 35 35 /ACCOUNTANT MEMBER / MUMBAI, 3 /DATE:12.02.2014 SK 3'4 3'4 3'4 3'4 .0 .0 .0 .0 ='+0 ='+0 ='+0 ='+0 / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / ,- 2. RESPONDENT / ./,- 3. THE CONCERNED CIT(A)/ > ? , 4. THE CONCERNED CIT / > ? 5. DR ITAT,NAGPUR BENCH/ @ .0 , . . ) . - . 6. GUARD FILE/ $ < . /0 .0 //TRUE COPY// 3'4 / BY ORDER, A / ( DY./ASST. REGISTRAR , /ITAT, MUMBAI.