ITO, WARD-1(5), Nagpur V. M/S. SHREE GANNAYAK BUILDERS AND DEVELOPERS, Nagpur

ITA 164/NAG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9649 (ITAT-NAGPUR)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 03-05-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K BARAL
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SH. G.D.AGRAWAL, HONBLE PRESIDENT AND SH. MAHAVIR SINGH, JUDICIAL MEMBER ITA NO. 164/NAG/2017 (ASSESSMENT YEAR: 2013 -14) ITO, WARD1(5), ROOM NO.502, 5 TH FLOOR, MECL BLDG., SEMINARY HILLS, NAGPUR440006. VS SHREE GANNAYAK BUILDERS & DEVELOPERS, PLOT NO.2, NEAR GLOBAL INDIA INTERNATIONAL SCHOOL, KALMANA BASTI, NAGPUR440008. PANABRFS9402L (APPELLANT) (RESPONDENT) APPELLANT BY SH. R.K.BARAL, SR.DR RESPONDENT BY SH. MANOJ MORYANI, ADV. DATE OF HEARING 07.03.2018 DATE OF PRONOUNCEMENT 07.03.2018 O R D E R PER BENCH THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF LD.CIT(A)-1, NAGPUR VIDE ORDER NO.CIT(A)-1/11/2016-17 DATED 07.02.2017. THE ASSESSMENT WAS FRAMED BY INCOME TAX OFFICER, WARD-1(5), NAGPUR U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) FOR A.Y. 2013-14 VIDE HI S ORDER DATED 29.02.2016. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF LD.CIT(A) IN DELETING THE ADDITION MADE BY THE AO B Y HOLDING THE EXPENDITURE DEBITED BY THE ASSESSEE TO THE TRADING ACCOUNT ON A CCOUNT OF PURCHASE OF LAND IS HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE A CT. FOR THIS, THE REVENUE HAS RAISED FOLLOWING FOUR GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN DELETING THE ADDI TION OF RS. 88,17,937/- MADE U/S 40A(3) OF THE LT. ACT, 1961 BY THE ASSESSI NG OFFICER. ITA NO.164/NAG/2017 PAGE | 2 2. THE LEARNED CIT(APPEALS) HAS ERRED IN NOT APPREC IATING THAT THE AMOUNT OF PURCHASE OF LAND AT RS. 1,67,70,000/ - HAS BEEN DEBITED BY THE ASSESSEE TO THE TRADING ACCOUNT FOR THE RELEVANT F. Y. RESULTING INTO A DECISION PERVERSE ON FACTS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(APPEALS) HAS ERRED IN NOT NOTICING THE DECISION OF THE HON'BLE HIGH COURT OF RAJASTHAN IN THE CASE OF KEJRIWAL IRO N STORES VS. COMMISSIONER OF INCOME TAX, 169 ITR 12(RAJASTHAN) W HEREIN IT IS HELD THAT THE WORD 'EXPENDITURE' OCCURRING IN SECTION 40A(3) CANNOT BE GIVEN A RESTRICTED MEANING SO AS TO REFER TO ONLY OVERHEAD EXPENSES ENUMERATED IN SECTION 30 TO 43A AND THAT THE PROVISIONS OF SECTIO N 40A(3) WERE APPLICABLE IN RESPECT OF PURCHASE OF GOODS ALSO. 4. THE DECISION OF LEARNED CIT(APPEALS) IS PERVERSE IN AW IN AS MUCH AS THE DIRECTION TO REDUCE THE COST OF WORK IN PROGRES S BY THE AMOUNT OF DISALLOWANCE U/S 40A(3) WOULD RESULT INTO ASSESSMEN T OF INCOME MUCH BELOW THE LOSS OF RS.34,70,395/- RETURNED BY THE AS SESSEE. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE FOLLO WING MERCANTILE SYSTEM OF ACCOUNTING. THE ASSESSEE IS ENGAGED IN THE BUSINES S OF LAND DEVELOPMENT. THE AO NOTED THAT THE ASSESSEE IN CONNECTION WITH PURCH ASE OF LAND AT KALMANA (KHASRA NO.142/3), A PAYMENT OF RS.1,54,25,000/- WE RE MADE TO 8 PERSONS IN CASH IN EXCESS OF RS.20,000/-. ACCORDING TO THE AO , ONCE THE PAYMENT IS MADE IN CASH IN EXCESS OF RS.20,000/- TO VARIOUS PERSONS , THE EXPENDITURE CLAIMED BY THE ASSESSEE BY DEBITING THE SAME TO THE P&L ACC OUNT IS HIT BY THE PROVISIONS OF SECTION 40A(3) OF THE ACT. THE AO AF TER CONSIDERING THE SUBMISSION IN ENTIRETY REGARDING CASH PAYMENT OUT O F THE TOTAL PAYMENT MADE TO 8 PERSONS IN EXCESS OF RS.20,000/-, A SUM OF RS. 88,17,937/- WAS DISALLOWED. ITA NO.164/NAG/2017 PAGE | 3 THE DETAILS ARE GIVEN IN THE ASSESSMENT ORDER WHICH NEED NOT TO BE REPRODUCED AGAIN. AGGRIEVED THE REVENUE PREFERRED APPEAL BEFO RE LD.CIT(A). 4. LD.CIT(A) RELYING ON THE TRIBUNALS ORDER OF ITA T, DELHI BENCH IN THE CASE OF DCIT VS A.F. PROPERTIES PVT. LTD. VIDE ORDER DATED 29.11.2013 DELETED THE DISALLOWANCE BY OBSERVING IN PARA 4 & 4.1 AS UNDER: - 4.0. APPELLANT'S SUBMISSIONS ALONG WITH ASSESSMEN T ORDER HAVE BEEN CONSIDERED CAREFULLY. APPELLANT'S FINANCIAL STATEME NTS FOR THE YEAR UNDER CONSIDERATION ALONG WITH EARLIER YEARS AND CASE LAW S, AS RELIED ON BOTH BY THE AO AND THE APPELLANT, HAVE ALSO BEEN PERUSED. F IRST AND FOREMOST, THE APPELLANT'S CONTENTION THAT NO CASH PAYMENT HAS BEE N MADE DURING THE YEAR UNDER CONSIDERATION IS NOT FOUND CORRECT. AS P ER ASSESSMENT ORDER, RECORDS AND, INFACT, APPELLANT'S LATEST SUBMISSIONS , CASH PAYMENT OF RS.22,46,000/- HAS BEEN MADE DURING THE YEAR UNDER CONSIDERATION FOR PURCHASE OF SAID IMMOVABLE PROPERTY. HOWEVER, IT IS SEEN THAT THE SAID LAND HAS BEEN SHOWN AS STOCK IN TRADE BY THE APPELL ANT. THE EARLIER YEARS BALANCE-SHEETS AS ON 31/03/2011 AND 31/03/2012 ALSO SHOW THE ADVANCE MADE FOR PURCHASE OF THIS PROPERTY AT RS.49 ,30,000/- (31/03/2011) AND RS.1,07,04,250/- (31/03/2012). FOR THE YEAR UNDER CONSIDERATION, THE SAID PROPERTY HAS BEEN SHOWN BY THE APPELLANT IN ITS STOCK IN TRADE AND THE EXPENDITURE FOR PURCHASE OF LAND HAS BEEN DEBITED TO WORK IN PROGRESS. THE APPELLANT IS NOT FOUND TO HAVE CLAIMED ANY EXPENDITURE ON PURCHASE OF THIS LAND BY DEBITING TH E SAME TO ITS P&L A/C. ON SIMILAR FACTS, IT HAS BEEN HELD BY HON'BLE ITAT, DELHI IN CASE OF DCIT, CENTRAL CIRCLE-1 VS. M/S A.F. PROPERTIES PVT. LTD. AND DC IT, CENTRAL CIRCLE- L, VS MLS AJAY AGGRAWAL PROJECTS PVT. LTD. VIDE COM MON ORDER DT. 29/11/2013 THAT PROVISIONS OF SEC.40A(3) ARE NOT AP PLICABLE. RELEVANT PORTION OF HON'BLE ITAT'S ORDER IS REPRODUCED AS UN DER:- '3. THE FACTS IN BOTH THE CASES ARE SIMILAR. THEREF ORE, WE SHALL DISCUSS HEREIN BELOW THE FACTS RELATING TO M/S. A.T . PROPERTIES PVT. LTD. THAT DURING THE ACCOUNTING YEAR RELEVANT TO AS SESSMENT YEAR ITA NO.164/NAG/2017 PAGE | 4 UNDER CONSIDERATION, THE ASSESSEE MADE THE PAYMENT OF RS. 72,16,397/- IN CASH FOR PURCHASES OF LAND. SINCE TH E ASSESSEE IS A BUILDER AND A DEVELOPER, THE ABOVE LAND WAS SHOWN A S WORK IN PROGRESS. THE ASSESSING OFFICER DISALLOWED 1/5TH OF THE ABOVE PAYMENT, I.E. RS. 14,43,280/- UNDER SECTION 40A(3). ON APPEAL, LEARNED CIT(A) DELETED THE ADDITION WITH THE FOLLOW ING FINDING:- '6.2 AS REGARD THE ISSUE OF DISALLOWANCE/ ADDITION UNDER SECTION 40A (3) IS CONCERNED, IT IS SEEN FROM THE R ECORDS AND EVIDENCES AVAILABLE THAT UPTO THE ASSESSMENT YEAR 2 005-06, CLOSING WORK IN PROGRESS OF LAND TO THE TUNE OF RS. 24,70,27,553/- HAS BEEN SHOWN WHICH COMPRISES OF OP ENING WORK IN PROGRESS, PURCHASES AND DEVELOPMENT COST BU T NO AMOUNT HAS BEEN CLAIMED AS EXPENDITURE IN THE YEAR UNDER CONSIDERATION. IT IS NOTICED THAT A SIMILAR ISSUE HAD ARISEN IN APPELLANT'S SISTER COMPANY CASE NAMELY VANSIDHAR PR OJECTS P. LTD. IN ASSESSMENT YEAR 2007-08 AND MY PREDECESSOR VIDE HIS ORDER DATED 06.02.2012 HAD GIVEN A FINDING THAT :- 'PAYMENT MADE AS ADVANCES FOR PURCHASE OF LAND WHIC H DOES NOT FORM PART OF PROFIT AND LOSS ACCOUNT WOULD NOT QUALIFY FOR DISALLOWANCE WITHIN MEANING OF SECTION 40A(1) READ WITH 40A(3).' 'THE DISALLOWANCE UNDER SECTION 40A (3) CAN BE MADE ONLY WHEN THE COST OF LAND IS DEBITED AS WORK-IN PROGRES S/ STOCK IN TRADE AND THE PROFIT AND LOSS ACCOUNT.' THE ABOVE VIEW OF THE CIT (A) WAS ALSO UPHELD BY IT AT VIDE THEIR ORDER DATED 07.12.2012, IN ITA NO. 1973/DE1/2012. 6.3 SINCE IN THE PRESENT CASE THE AMOUNT GIVEN FOR PURCHASE OF LAND DOES NOT FORM PART OF PROFIT & LOSS ACCOUNT AND THE SAME HAS NOT BEEN CLAIMED AS EXPENDITURE IN THE YEAR UNDER CONSI DERATION, ITA NO.164/NAG/2017 PAGE | 5 THEREFORE RELYING ON ITAT'S ORDER DELIVERED IN APPE LLANT'S SISTER CONCERN NAMELY VANSIDHAR PROJECTS P LTD., I AM OF T HE CONSIDERED VIEW THAT THE PROVISIONS OF SECTION 40A(3) WOULD NO T APPLY TO THE FACTS OF APPELLANT'S CASE. HENCE THE ADDITION OF RS. 14,43,280/- MADE BY THE A O IN THE PRESENT CASE CANNOT BE ADDED AS INCOME NOW AT THIS POINT OF TIME AND THUS IT DESERVES TO BE DELETED. THE ONLY THING WHICH CAN BE DONE NOW IS THAT THE COST OF WORK-IN-PROGRESS IS TO BE R EDUCED BY THE SAME AMOUNT I.E. RS. 14,43,280/-. SUBJECT TO THE ABOVE DIRECTIONS, THE ADDITION OF RS .14,43,280/- IS DELETED FOLLOWING THE ITAT'S ORDER NO. ITA 1973/DE1 /2012, DATED 07.12.2012 IN APPELLANT'S GROUP CONCERN NAMELY VANS HIDHAR PROJECTS P. LTD.' THE REVENUE, AGGRIEVED WITH THE ORDER OF LEARNED CI T (A), IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL PLACED BEFORE US. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES AND THE FACTS OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LEARNED CIT(A). THE LEARNED CIT(A) HAS NOT DISPUTED THE APP LICABILITY OF SECTION 40A(3) IN RESPECT OF CASH PAYMENT MADE BY T HE ASSESSEE. HOWEVER, ANY EXPENDITURE CAN BE DISALLOWED ONLY WHE N THE DEDUCTION IN RESPECT OF SUCH EXPENDITURE IS CLAIMED BY THE ASSESSEE. IN THIS CASE, ADMITTEDLY, THE ASSESSEE HAS NOT CLAI MED THE EXPENDITURE ON PURCHASE OF LAND BY DEBITING THE SAM E TO THE PROFIT & LOSS ACCOUNT BUT THE EXPENDITURE FOR PURCHASE OF LA ND HAS BEEN DEBITED TO WORK-IN PROGRESS. THE CIT(A) HAS ALREADY DIRECTED THAT THE WORK-IN-PROGRESS IS TO BE THE DISALLOWANCE REQUIRED TO BE MADE UNDER SECTION (3). IN OUR OPINION, THE DIRECTION OF THE CIT (A) IS FULLY JUSTIFIED. WE THEREFORE, DO NOT FIND ANY JUSTIFICA TION TO INTERFERE WITH THE SAME. THE ORDER OF LEARNED CIT(A) IS SUSTAINED. ITA NO.164/NAG/2017 PAGE | 6 5. IN THE CASE OF AJAY AGGRAWA1 PROJECTS PVT. LTD. ALSO, THE FACTS AND THE ORDER OF THE CIT(A) ARE IDENTICAL. FOR THE DETA ILED DISCUSSION IN PARAGRAPH 4 ABOVE, WE UPHOLD THE ORDER OF LEARNED C IT(A) IN THIS CASE. ACCORDINGLY, THE REVENUE'S APPEALS ARE DISMIS SED. 6. IN THE RESULT, THE APPEALS OF THE REVENUE ARE D ISMISSED.' 4.1 AFTER PERUSAL OF ENTIRE MATERIAL ON RECORDS, T HE APPELLANT HAS NOT BEEN ABLE TO PROVE ITS CASE OF EXCEPTIONAL CIRCUMST ANCES WITHIN THE PURVIEW OF RULE 6DD. HOWEVER, BY RELYING ON DECISION OF HON 'BLE ITAT, DELHI, AS REPRODUCED ABOVE, IMPUGNED ADDITION AS PER PROVISIO NS OF SECTION 40A(3) ITSELF IS NOT FOUND SUSTAINABLE IN THE CASE OF THE APPELLANT SUBJECT TO REMARKS THAT COST OF WORK IN PROGRESS IN CASE OF TH E APPELLANT IS TO BE REDUCED BY THE SAME AMOUNT. SUBJECT TO THE ABOVE DI RECTIONS/ REMARKS, ADDITION OF RS.88, 17,937/- IS, ACCORDINGLY, DELETE D. AGGRIEVED, NOW THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GOING TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. BEFORE US, LD.SR.DR REL IED ON THE ASSESSMENT ORDER AND STATED THAT CASH PAYMENT MADE FOR EXPENDITURE I .E. FOR PURCHASE OF LAND BEING STOCK-IN-TRADE IS CLEARLY HIT BY THE PROVISIO N OF SECTION 40A(3) OF THE ACT AND LD.CIT(A) HAS WRONGLY ALLOWED THE CLAIM OF THE ASSESSEE. IT WAS ALSO STATED BY LD.SR.DR THAT THE ASSESSEE COULD NOT BRING OUT A NY EXCEPTION TO RULE 6DD OF I.T. RULES, 1962 THAT THE ASSESSEES CASE FALLS UNDER ANY OF THE EXCEPTION. LD.SR.DR ALSO RELIED ON THE DECISION OF HON'BLE SUP REME COURT IN THE CASE OF ATAR SINGH GURMUKH SINGH VS INCOME TAX OFFICER [199 1] 191 ITR 667, 672-73 (SC) WHEREIN HON'BLE SUPREME COURT HELD AS UNDER:- SECTION 40A(3) MUST BE READ ALONGWITH RULE 6DD. S O READ, THESE PROVISIONS ARE NOT INTENDED TO RESTRICT THE BUSINES S ACTIVITIES. THERE IS NO RESTRICTION ON THE ASSESSEE IN HIS TRADING ACTIVITI ES. THESE PROVISIONS ARE ITA NO.164/NAG/2017 PAGE | 7 INTENDED TO REGULATE BUSINESS TRANSACTIONS AND TO P REVENT THE USE OF UNACCOUNTED MONEY OR TO REDUCE THE CHANCES TO USE B LACK MONEY FOR BUSINESS TRANSACTIONS. ANY RESTRAINT INTENDED TO C URB THE CHANCES AND OPPORTUNITIES TO USE OR CREATE BLACK MONEY SHOULD N OT BE REGARDED AS CURTAILING THE FREEDOM OF TRADE OR BUSINESS. 6. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE FILED COPY OF TRIBUNALS ORDER IN WHICH ONE OF US (SH. G.D.AGRAWAL, HON'BLE PRESIDENT, ITAT IS PARTY) IN THE CASE OF DCIT VS A.T. PROPERTIES PVT.LTD. IN ITA NO.3303/DEL/2013 VIDE ORDER DATED 29.11.2013 WHEREIN THE TRIBUNAL HAS TAKEN THE VIEW VIDE PARA 4 AS UNDER:- 4. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL PLACED BEFORE US. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES AND THE FACTS OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF EARNED CIT(A). THE LEARNED CIT(A) HAS NOT DISPUTED THE APPLICABILITY O F SECTION 40A(3) IN RESPECT OF CASH PAYMENT MADE BY THE ASSESSEE. HOWEV ER, ANY EXPENDITURE CAN BE DISALLOWED ONLY WHEN THE DEDUCTION IN RESPEC T OF SUCH EXPENDITURE IS CLAIMED BY THE ASSESSEE. IN THIS CASE, ADMITTEDL Y, THE ASSESSEE HAS NOT CLAIMED THE EXPENDITURE ON PURCHASE OF LAND BY DEBI TING THE SAME TO THE PROFIT & LOSS ACCOUNT BUT THE EXPENDITURE FOR PURCH ASE OF LAND HAS BEEN DEBITED TO WORK-IN-PROGRESS. THE CIT(A) HAS ALREADY DIRECTED THAT THE WORK- IN-PROGRESS IS TO BE REDUCED B THE DISALLOWANCE REQ UIRED TO BE MADE UNDER SECTION 40A(3). IN OUR OPINION, THE DIRECTION OF TH E CIT(A) IS FULLY JUSTIFIED. WE, 4 ITA - 3303 & 3304/D/2013 THEREFORE, DO NOT FI ND ANY JUSTIFICATION TO INTERFERE WITH THE SAME. THE ORDER OF LEARNED CIT(A ) IS SUSTAINED. 7. WHILE GOING THOUGH THE TRIBUNALS ORDER IN THE C ASE OF A.T. PROPERTIES P.LTD. (SUPRA), WE HAVE NOTICED THAT WHERE THE ASSE SSEE HAS NOT CLAIMED THE EXPENDITURE ON PURCHASE OF LAND BY NOT DEBITING THE SAME TO THE P&L A/C BUT THE EXPENDITURE ON PURCHASE OF LAND HAS BEEN DEBITE D TO WORK-IN-PROGRESS, THE ITA NO.164/NAG/2017 PAGE | 8 TRIBUNAL HAS ALSO OBSERVED THAT LD.CIT(A) HAS ALREA DY DIRECTED THE AO TO REDUCE THE WORK-IN-PROGRESS AS REQUIRED U/S 40A(3) OF THE ACT. WHEN THIS WAS POINTED OUT TO THE LD. COUNSEL FOR THE ASSESSEE, HE CONCEDED THE POSITION AND STATED THAT ONLY PAYMENT TO THE EXTENT OF RS.24,24, 687/- WAS MADE DURING THE YEAR. WE HAVE ALSO GONE THROUGH THE TRADING ACCOUN T WHICH IS FILED IN ASSESSEES PAPER BOOK AT PAGE 10 WHEREIN TOTAL LAN D PURCHASE IS DEPICTED AT AN AMOUNT OF RS.1,67,70,000/-. IT MEANS THAT THE SA ME IS INCLUDED IN THIS AS WORK-IN-PROGRESS. WE ARE OF THE VIEW THAT EVEN TO THE EXPENDITURE INCURRED FOR WORK-IN-PROGRESS, THE PROVISION OF SECTION 40A(3) O F THE ACT WILL APPLY BUT IN THIS YEAR, THE WORK-IN-PROGRESS TO THE EXTENT OF PA YMENT MADE IN THIS YEAR ALONE CAN BE REDUCED FROM THE WORK-IN-PROGRESS AND THIS AMOUNT CAN BE ADDED IN THE YEAR WHEN PROJECT WILL BE COMPLETED AND PROF IT WILL BE DECLARED ON THIS PROJECT BY THE ASSESSEE. IN TERMS OF THE ABOVE DIR ECTIONS, WE RESTORE THIS MATTER BACK TO THE FILE TO THE AO FOR VERIFICATION AND FOR CARRYING OUT OUR ABOVE DIRECTION. PRINCIPALLY, WE AGREE WITH THE PROVISIO NS OF SECTION 40A(3) WILL APPLY IN THIS CASE. ACCORDINGLY, THE MATTER IS RESTORED B ACK TO THE FILE OF AO. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH MARCH, 2018. SD/ SD/ (G.D.AGRAWAL) (MAHAVIR SINGH) HONBLE PRESIDENT JUDICIAL MEMBER DATED:07 TH MARCH, 2018 *AMIT KUMAR* ITA NO.164/NAG/2017 PAGE | 9 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), NAGPUR 4. THE CIT, NAGPUR 5. THE DR, BENCH, ITAT, NAGPUR BY ORD ER ASSISTANT REGISTRAR ITAT, NAGPUR BENCH, NAGPUR