M/s MSK Projects (India) Ltd., Baroda V. The ACIT, Central Circle -1(2), Ahmedabad

ITA 1633/AHD/2006

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6282 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 31-03-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 26-06-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA SR D R DRAFTED O
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Depreciation; Business expenditure; Opportunity of being heard; Deemed to accrue or arise in india; Initiation of penalty proceedings
• Section: 234B; 14A; 80IA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : A HMEDABAD (BEFORE HON'BLE SHRI G.D. AGRAWAL, V.P. (AZ) & HON BLE SHRI T.K. SHARMA, J.M.) I.T.A. NO. 1633/AHD./2006 ASSESSMENT YEAR : 2002-2003 M/S. MSK PROJECTS (INDIA) LTD., -VS.- ASSISTANT COMMISSIONER OF INCOME TAX, BARODA (PAN : AABCM 4107 C) CENTRAL CIRCLE-1(2), AHMEDABAD (APPELLANT) (RESPONDENT) & I.T.A. NO. 1722/AHD./2006 ASSESSMENT YEAR : 2002-2003 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- M/S . MSK PROJECTS (INDIA) LTD., BARODA CENTRAL CIRCLE-1(2), AHMEDABAD (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.N. SOPARKAR DEPARTMENT BY : SHRI C.K. MISHRA, SR. D. R. 1/03/2010 DRAFTED O O R D E R PER SHRI T.K.SHARMA, JUDICIAL MEMBER : THESE CROSS APPEALS BY THE ASSESSEE AND THE REVENU E (BY ITA NOS.1633/AHD/2006 & 1722/AHD/2006RESPECTIVELY) ARE AGAINST THE ORDER D ATED 03.03.2006 OF LD. COMMISSIONER OF INCOME TAX(APPEALS)-III FOR THE ASSESSMENT YEAR 20 02-03. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS IN ITS APPEAL:- 1) THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING THE ACTION OF THE LD. AO IN DISALLOWING INTEREST OF RS.24,57,083/- CLAIM ED BY THE APPELLANT U/S.36(1)(III) OF THE ACT. 2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING THE ACTION OF THE LD.AO IN DISALLOWING RS.16,051/- OUT OF THE STAFF W ELFARE EXPENSES INCURRED. 3) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CON FIRMING HE ACTION OF THE AO IN DISALLOWING RS.1,79,617/- BEING 5% OF STAFF WELF ARE EXPENSES. 2 ITA NO. 1633 & 1722/AHD/2006 4) THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN CON FIRMING THE ACTION OF THE LD. AO IN DISALLOWING RS.1,24,433/- BEING 5% OF TOTAL TELEPHONE & CONVEYANCE EXPENSES. 5) THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN CON FIRMING THE ACTION OF THE LD. AO IN RESTRICTING THE CLAIM OF DEPRECIATION @ 10% AS AGAINST ELIGIBLE RATE OF 25% ON THE OFFICE EQUIPMENTS. 6) THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN PAR TLY CONFIRMING THE ACTION OF LD. AO IN NOT ALLOWING THE CLAIM OF MEMBERSHIP AND SUB SCRIPTION EXPENSES, POOJA & DIWALI EXPENSES AND ENTERTAINMENT EXPENSES AS CLAIM ED BY THE APPELLANT AS BUSINESS EXPENDITURE. 7) THE LD. CIT(A) HAS ERRED IN LAW AND IN FACTS IN CON FIRMING THE ACTION OF THE LD. A.O. IN HOLDING THAT THE PROFIT OF BOT PROJECT AT K ISHANGARH IS INCORRECTLY DETERMINED IN AS MUCH AS THAT THE INTEREST INCOME A MOUNTING TO RS.2,27,828/- AS SHOWN IN PROFIT AND LOSS ACCOUNT AND UNPAID SALES T AX LIABILITIES OF RS.26,25,663/- AS ON 31/3/2002 HAS NOT BEEN CONSIDERED IN DETERMIN ING THE TAXABLE INCOME. 8) BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND IN FACTS IN NOT CONSIDERING AND GROSSLY IGNORING VARIOUS EXPLANATIONS, SUBMISSIONS AND EVIDENCES PLACED ON RECORD BY THE APPELLANT IN ITS PROPER PERSPECTIVE A ND FURTHER ERRED IN NOT APPRECIATING THE VIEW POINT OF THE APPELLANT. THI S ACTION OF BOTH THE LOWER AUTHORITIES IS IN CLEAR BREACH OF PRINCIPLES OF NAT URAL JUSTICE AND, THEREFORE, DESERVES TO BE QUASHED. 9) LEVY OF INTEREST U/S.234A/B/C OF THE ACT IS NOT JUS TIFIED. 10) INITIATION OF PENALTY PROCEEDINGS U/S.271(1)(C) OF THE ACT NOT JUSTIFIED. 2.1. THE REVENUE HAS RAISED ONLY ONE GROUND IN ITS APPEAL WHICH READS AS UNDER:- THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECT ING TO RESTRICT THE ADDITION OF RS.26,83,618/- MADE ON ACCOUNT OF DISALLOWANCE OF I NTEREST EXPENDITURE, IN VIEW OF PROVISIONS OF SECTION 14A AND SECTION 36(1)(III) OF THE ACT TO RS.24,58,642/- WITHOUT VERIFICATION OF INVESTMENT MADE IN VARIOUS CO.OP. BANKS IN THE COURSE OF BUSINESS. 3. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF ASSESSEE SHRI S.N. SOPARKAR APPEARED AND WITH REGARD TO CONTROVERSY INVOLVED IN GROUND NO. 1 OF ASSESSEES APPEAL AND ONLY GROUND 3 ITA NO. 1633 & 1722/AHD/2006 INVOLVED IN REVENUES APPEAL CONTENDED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E. ASSESSMENT YEAR 2001-02, TRIBUNAL VIDE ITS ORDER DA TED 07.08.2009 IN ITA NO. 3518/AHD/2004 RESTORED THE ISSUE REGARDING DISALLOWANCE OF INTERE ST UNDER SECTION 36(1)(III) TO THE FILE OF ASSESSING OFFICER. THE RELEVANT DISCUSSION IS CONTA INED IN PARAGRAPH NOS.3 TO 11 ON PAGE NOS. 2 TO 11 OF THE ORDER OF THE TRIBUNAL FOR THE ASSESSME NT YEAR 2001-02. ON THIS BASIS, HE STATED THAT FOR THIS YEAR ALSO, THE MATTER BE RESTORED TO THE F ILE OF ASSESSING OFFICER, WHO WILL EXAMINE THE DISALLOWANCE MADE UNDER SECTION U/S.36(1)(III) KEEP ING IN VIEW THE DIRECTION OF THE TRIBUNAL IN THE ASSESSMENT YEAR 2001-02 AS WELL AS THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD. VS.- CIT(APPEALS) & ANR. [2007] 288 ITR 1 (SC). 4. ON THE OTHER HAND, SHRI C.K.MISHRA, LEARNED DEPA RTMENTAL REPRESENTATIVE FOR THE REVENUE COULD NOT CONTROVERT THE AFORESAID SUBMISSI ONS OF THE LD. COUNSEL FOR THE ASSESSEE. 5. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE ASSESSMENT YEAR 2001-02, THE ITAT AHMEDABAD BENCH D VIDE ORDER DATED 7/08/2009 RESTORED THIS ISSUE TO THE FILE OF ASSESSING OFFICER DIRECTING HIM TO GIVE AN OPPORTUNITY TO THE ASSESSEE TO SHOW THAT INTEREST-BEARING FUNDS WERE NOT UTILIZED FOR INVESTING INTO INFRASTRUCTURE DIVISION THEREBY CLEA RLY CREATING AN INFERENCE THAT IT WAS INTEREST- FREE FUNDS WHICH WERE GIVEN TO INFRASTRUCTURE DIVIS ION. IT IS ONLY TO THE EXTENT INTEREST-BEARING FUNDS ARE PROVED TO HAVE GONE TO INFRASTRUCTURE DIV ISION THE INTEREST RELATABLE TO SUCH TRANSFER OF INTEREST BEARING FUNDS THIS YEAR TO INFRASTRUCTURE DIVISION WILL ALONE TO BE CONSIDERED FOR DISALLOWANCE IN CONSTRUCTION DIVISION. KEEPING IN VIEW THE DIRECTION OF THE TRIBUNAL IN THE IMMEDIATELY PRECEDING YEAR AND RATIO OF THE JUDGEME NT OF HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS LTD.(SUPRA), THE ASSESSING OFFICER W ILL RE-ADJUDICATE THE DISALLOWANCE OF INTEREST AFRESH, AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO BOTH THE SIDES. CONSEQUENTLY, THE APPEAL OF THE REVENUE AND GROUND NO.1 OF ASSESS EES APPEAL ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6. NOW WE TAKE THE GROUNDS OF ASSESSEES APPEAL. GROUNDS NO.2 & 5 OF ASSESSEES APPEAL WERE NOT PRE SSED AT THE TIME OF HEARING, THEREFORE, THESE ARE DISMISSED BEING NOT PRESSED. 4 ITA NO. 1633 & 1722/AHD/2006 7. GROUND NO.3 RELATES TO CONFIRMING THE DISALLOWAN CE OF RS.1,79,617/- BEING 5% OF STAFF WELFARE EXPENSES. AT THE TIME OF HEARING BEFORE U S, BOTH THE SIDES CONCEDED THAT ITAT AHMEDABAD BENCH C IN ASSESSEES OWN CASE IN ITA NO.1230/AHD/2002 FOR ASSESSMENT YEAR 1998-99 ORDER DATED 14/07/2006 HELD THAT 10% OF D ISALLOWABLE EXPENSES SHOULD BE DISALLOWED AND NOT ADHOC 5% AS DONE BY THE ASSESSING OFFICER I N THE ASSESSMENT ORDER. FOLLOWING THE SAID ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEAR 1998-99, WE DIRECT THE ASSESSING OFFICER TO RE-WORK THE DISALLOWANCE. 8. GROUND NO.4 OF THE ASSESSEES APPEAL IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2001-02 (IN ITA NO.3518/AHD/2004) [SUPRA] AND THE DECISION OF HON'BLE GUJARAT HIGH CO URT IN THE CASE OF SAYAJI IRON & ENGG. CO. VS. CIT (2002) 253 ITR 749 (GUJ.). FOLLOWING THE SAID ORDER OF THE TRIBUNAL AS WELL AS DECISION OF HON'BLE JURISDICTIONAL HIGH COURT(SUPRA), WE DIR ECT THE ASSESSING OFFICER TO RE-WORK THE DISALLOWANCE. ACCORDINGLY, FOR STATISTICAL PURPOSE S, THIS GROUND OF ASSESSEES APPEAL IS TREATED AS ALLOWED. 9. SO FAR AS GROUND NO.6 RELATING TO PARTLY CONFIRM ING THE ACTION OF ASSESSING OFFICER IN NOT ALLOWING THE CLAIM OF MEMBERSHIP AND SUBSCRIPTION E XPENSES. THE ASSESSING OFFICER DISALLOWED RS.25,105/- OUT OF WHICH LEARNED CIT(APPEALS) RETAI NED PART OF IT. IN THE ASSESSMENT YEAR 2001-02, PARTLY RETAINED AMOUNT WAS DELETED VIDE PA RAGRAPH NOS.21 AND 22 OF ITAT. THE ORDER DATED 07/08/2009 IN ASSESSEES OWN CASE. FOLLOWING THE SAME, ADDITION TO THE EXTENT RETAINED BY LEARNED CIT(APPEALS), IS DELETED. THIS GROUND OF A PPEAL IS ALLOWED. 10. GROUND NO.7 IS AGAINST CONFIRMING THE DISALLOWA NCE U/S.80-IA OF THE I.T. ACT, 1961 ON THE FOLLOWING INCOME:- SL.NO(S) PARTICULARS AMOUNT (RS.) I) INTEREST INCOME 2,27,828/- II) DISALLOWANCE U/S.43B BEING UNPAID SALES TAX LIABILITY 26,25,663/- 10.1. THE BRIEF FACTS RELATING TO CONTROVERSY INVOL VED ARE THAT THE ASSESSING OFFICER TOOK THE VIEW THAT DEDUCTION U/S.80-IA OF THE I.T. ACT, 1961 IS ALLOWABLE ON BOTH THE AFORESAID TWO ITEMS OF INCOME BECAUSE THERE WAS NO DIRECT NEXUS OF TH ESE TWO ITEMS WITH THE INCOME DERIVED FROM 5 ITA NO. 1633 & 1722/AHD/2006 THE UNDERTAKING. ON APPEAL IN THE IMPUGNED ORDER, THE LEARNED CIT(APPEALS) UPHELD THE ACTION OF THE ASSESSING OFFICER. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 11. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT EVEN IF THE INTEREST INCOME IS ASSESSED UNDER THE HEAD INCOME FROM OTHE R SOURCES IN THAT EVENT ALSO WHATEVER EXPENDITURE IS INCURRED ON PAYMENT OF INTEREST, ON MONEY BORROWED FOR EARNING THE INTEREST INCOME IS REQUIRED TO BE CONSIDERED UNDER THE HEAD INCOME FROM OTHER SOURCES. APPLYING THIS PRINCIPLE, THE ASSESSING OFFICER BE DIRECTED TO ALL OW THE BENEFIT OF NETTING TO THE EXTENT THE ASSESSEE PROVED THE NEXUS. WITH REGARD TO UNPAID S ALES TAX, HE SUBMITTED THAT SALES TAX IS PART OF TURNOVER, WHETHER IT IS PAID OR NOT PAID, IS NOT RE LEVANT FOR THE PURPOSE OF COMPUTING DEDUCTION U/S.80-IA OF THE I.T. ACT, 1961. HE SUBMITTED THA T THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE DEDUCTION U/S.80-IA OF THE I.T. ACT, 1961 IN RESPEC T OF BOTH THESE ITEMS. 12. FOR REVENUE, SHRI C.K. MISHRA, LEARNED DEPARTME NTAL REPRESENTATIVE, SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. THE LEARNED DEPAR TMENTAL REPRESENTATIVE POINTED OUT THAT FOR THE PURPOSE OF CALCULATING DEDUCTION U/S.80HHC OF THE I.T. ACT, 1961, SALES TAX IS NOT A PART OF TURNOVER, THEREFORE, WHATEVER AMOUNT IS DISALLOWED U/S.43B OF THE I.T. ACT, 1961 IS DEEMED INCOME OF ASSESSEE ON WHICH DEDUCTION U/S.80-IA OF THE I.T. ACT, 1961 IS NOT ALLOWABLE. WITH REGARD TO ALLOWING THE BENEFIT OF NETTING FROM INTE REST INCOME, THE LEARNED DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT ONUS IS ON THE ASSE SSEE TO PROVE THE NEXUS. THE NEXUS WAS NOT EXAMINED. THIS PLEA WAS NOT RAISED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES, THEREFORE, THE VIEW TAKEN BY THE LEARNED CIT(APPEALS) BE UPHELD. 13. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF LO WER AUTHORITIES. WE FOUND CONSIDERABLE FORCE IN THE SUBMISSIONS MADE BY THE LD. COUNSEL FO R THE ASSESSEE THAT EVEN IF INTEREST INCOME IS ASSESSED UNDER THE HEAD INCOME FORM OTHER SOURCE, THE ASSESSEE IS ENTITLED TO BENEFIT OF NETTING. IN CASE, THERE IS A DIRECT NEXUS, THE ASSESSEE IS E NTITLED TO BENEFIT OF NETTING AND ONUS IS ON THE A TO PROVE THE NEXUS. WE, THEREFORE, RESTORE THIS ISSU E TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION THAT TO THE EXTENT ASSESSEE PROVES THAT I NTEREST PAID ON MONEY BORROWED FOR EARNING THE INTEREST INCOME OF RS.2,27,828/-, THE ASSESSING OFF ICER WILL ALLOW THE BENEFIT OF NETTING. 14. REGARDING SALES TAX LIABILITIES OF RS.26,25,66 3/-, IT IS PERTINENT TO NOTE THAT SALES TAX IS A PART OF TURNOVER. THIS ASPECT IS COMPLETELY IGNORED BY THE LEARNED COMMISSIONER OF INCOME 6 ITA NO. 1633 & 1722/AHD/2006 TAX(APPEALS) IN THE IMPUGNED ORDER. THE MERE FACT T HAT SALES TAX INCOME ACCRUED AS A RESULT OF DISALLOWANCE MADE UNDER SECTION 43B, IN OUR OPINION , IS OF NO CONSEQUENCE BECAUSE SALES TAX COLLECTED BY THE ASSESSEE HAS DIRECT NEXUS WITH THE INDUSTRIAL ACTIVITY OF THE ASSESSEE. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO ALLOW TH E DEDUCTION UNDER SECTION 80IA ON SALES TAX LIABILITY OF RS.26,25,633/-, WHICH IS ASSESSED BY T HE ASSESSING OFFICER AS BUSINESS INCOME. 15. GROUND NO.8 IS GENERAL IN NATURE, HENCE DOES NO T REQUIRE ANY INDEPENDENT ADJUDICATION BY US. 16. GROUND NO.9 REGARDING LEVY OF INTEREST U/S.234A , 234B & 234C OF THE I.T. ACT, 1961 IS MANDATORY. THE ASSESSING OFFICER WILL ALLOW CONSE QUENTIAL RELIEF, IF ANY. 17. IN THE RESULT, FOR STATISTICAL PURPOSES. BO TH THE APPEALS ARE TREATED AS PARTLY ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 14.05.201 0 SD/- SD/- (G.D. AGRAWAL) (T.K. SHARMA ) VICE-PRESIDENT (AZ) JUDICIAL MEMBER DATED : 14 / 05 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.