Moti Udharam Panjabi, Pune V. Deputy Commissioner of Income-tax,

ITA 1680/PUN/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4039 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 27-02-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 23-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: NILESH KHANDELWAL
• Keywords: Depreciation
• Section: 43B; 40A(3); 14A; 80IB; 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JM . / ITA NO.1680/PUN/2015 / ASSESSMENT YEAR : 2011-12 SHRI MOTI UDHARAM PANJABI, MZSK & ASSOCIATES CHARTERED ACCOUNTANTS, LEVEL 3, BUSINESS BAY, PLOT NO.84, WELLESLEY ROAD, NEAR RTO, PUNE 411001 PAN : AARPP2118D /APPELLANT VS. DCIT, CENTRAL CIRCLE-2(1), PUNE . /RESPONDENT ASSESSEE BY : SHRI NILESH KHANDELWAL REVENUE BY : SHRI SUDHENDU DAS / DATE OF HEARING : 01.11.2018 / DATE OF PRONOUNCEMENT: 02.11.2018 / ORDER PER R.S.SYAL, VP : THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER PA SSED BY THE CIT(A)-12, PUNE, DATED 09-10-2015 IN RELATION TO THE ASSESSMENT YEAR 201-12. 2. THE FIRST TWO GROUNDS ARE DIRECTED AGAINST REALLOCATIN G AMOUNT OF DEPRECIATION ON ALL ASSETS WHICH AMOUNT WAS SUBSEQUENT LY ENHANCED BY THE LD. CIT(A). 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE AS SESSEE EARNED INCOME FROM PROJECTS TITLED AS HEAD OFFICE (HO), SWISS COUNT Y AND SILVER MIST. THE INCOME FROM SWISS COUNTY AND SILVER MIST PR OJECTS IS ELIGIBLE FOR DEDUCTION U/S.80IB(10) OF THE INCOME-TAX ACT, 1 961 (HEREINAFTER ALSO CALLED `THE ACT), WHEREAS INCOME FROM T HE HO IS NOT ITA NO.1680/PUN/2015 MOTI UDHARAM PANJABI 2 SO ELIGIBLE. THE ASSESSEE CLAIMED DEDUCTION FOR DEPRECIATION OF RS.50,76,731/- IN TOTAL, WHICH WAS BIFURCATED AS RS.41,51,812/ - UNDER HO; RS.9,18,420 UNDER SWISS COUNTRY; AND RS.6,499/- UNDE R SILVER MIST. THE AO OBSERVED THAT ALMOST 80% OF DEPREC IATION WAS CLAIMED BY THE ASSESSEE IN NON-80IB PROJECT, NAMELY, HO, WHICH WAS NOT APPROPRIATE. HE REJECTED THE ASSESSEES CLAIM THAT SEPARATE BOOKS OF ACCOUNT WERE MAINTAINED FOR EACH PROJECT AND HENCE T HE DISALLOWANCE OF DEPRECIATION WAS NOT PERMISSIBLE. IN THE BAC KDROP OF SUCH AN ALLOCATION MADE BY THE ASSESSEE, THE AO DISALLOWED 25% OF DEPRECIATION CLAIMED BY THE ASSESSEE IN THE HO PROJECT A ND ALLOCATED IT TO NON-80IB PROJECTS NAMELY, SWISS COUNTY AND SILV ER MIST IN THE RATIO OF THEIR CLOSING STOCKS. THIS LED TO AN ADDITION OF RS.10,37,953/-. THE ASSESSEE APPROACHED THE LD. CIT(A) AG AINST SUCH A DISALLOWANCE. THE LD. FIRST APPELLATE AUTHORITY HAS D RAWN A CHART OF ASSETS ON PAGE 17 OF HIS ORDER GIVING PROJECT-W ISE LOCATION OF DIFFERENT ASSETS. HE, INTER ALIA, OBSERVED THAT ALL THE RELEVANT ASSETS NECESSARY FOR CONSTRUCTION PROJECTS AND VEHICLES WERE A PPEARING AS ASSETS OF HO. AS SUCH, IT WAS HELD THAT IT WAS NOT POSSIB LE TO CARRY OUT CONSTRUCTION PROJECTS WITHOUT THE USE OF ANY CONST RUCTION MACHINERY BY THE ELIGIBLE PROJECTS. THAT IS HOW, HE OPINED THAT A LL THE ASSETS OF THE ASSESSEE WERE BEING USED COMMONLY FOR ALL THE PROJECTS. THE TOTAL AMOUNT OF DEPRECIATION WAS ALLOCATED BETWEEN TH E HO, SWISS COUNTY AND SILVER MIST IN THE RATIO OF INCREASE IN INVENTORY AS ADDED BY THE AMOUNT OF SALES. THIS LED TO THE ALLOCATION OF DEPRECIATION TO THE HO AT RS.7,55,417/- AND THE BALANCE AMOUNT OF DEPRECIATION WAS APPORTIONED BETWEEN THE ELIGIBLE PROJECTS , WHICH RESULTED INTO ENHANCEMENT OF DISALLOWANCE OF DEPRECIATION BY ITA NO.1680/PUN/2015 MOTI UDHARAM PANJABI 3 RS.23,58,442/-. THE ASSESSEE IS AGGRIEVED BY SUCH AN ENH ANCEMENT OF AMOUNT OF DEPRECIATION. 4. HAVING HEARD BOTH THE SIDES AND PERUSED THE RELEVAN T MATERIAL ON RECORD, IT IS FOUND AS ADMITTED POSITION THAT THE ASSE SSEE EARNED INCOME FROM THE HO, SWISS COUNTY AND SILVER MIST PROJE CTS. WHEREAS INCOME FROM THE HO PROJECT IS CHARGEABLE TO TA X, INCOME FROM SWISS COUNTY AND SILVER MIST IS ADMITTEDLY ELIGIBLE FOR DEDUCTION U/S.80IB OF THE ACT. THE ASSESSEE ALLOCATED A LARGER CHUNK OF ASSETS AND THE RESULTANT DEPRECIATION TO NON-ELIGIBLE PR OJECT OF THE HO SO AS TO DEPRESS THE AMOUNT OF PROFIT CHARGEABLE T O TAX. THE FACT THAT THE ASSESSEE WAS MAINTAINING SEPARATE BOOKS OF ACC OUNT AND THE ASSETS WERE SHOWN DISTINCTLY, CANNOT BE A GROUND TO ALLO CATE DEPRECIATION APPROPRIATELY, IF THE ASSESSEE HAS CONSIDERED MAJORITY OF ASSETS IN NON-ELIGIBLE PROJECT, BUT SUCH ASSETS WERE ALSO USED BY THE ELIGIBLE PROJECTS, AS IS THE CASE UNDER CONSIDERATION. THE LD. CIT(A) HAS APTLY POINTED OUT THAT THE ASSESSEE HAS NOT SHOW N SEVERAL IMPORTANT ASSETS IN THE ELIGIBLE UNITS WITHOUT WHICH NO CON STRUCTION ACTIVITY COULD HAVE BEEN CARRIED OUT. WE, THEREFORE, UPHOLD , IN PRINCIPLE, THE ACTION OF THE AUTHORITIES BELOW IN MAKING DISALLOW ANCE OF DEPRECIATION. 5. AS REGARDS THE QUANTUM OF THE AMOUNT OF DEPRECIATION TO BE DISALLOWED, WE FIND THAT THE LD. CIT(A) HAS BIFURCATED TOTAL A MOUNT OF DEPRECIATION IN THREE PROJECTS IN THE RATIO OF INCREASE IN INVENTORY AS ADDED BY AMOUNT OF SALES UNDER THE RESPECTIVE PROJECTS . SUCH A MECHANISM OF ALLOCATION OF DEPRECIATION IS NOT FULLY APPROPRIAT E. IN OUR CONSIDERED OPINION, THE DISALLOWANCE CAN BE CORRECTLY MADE BY FIRSTLY ALLOCATING THE ASSETS TO THE RESPECTIVE PROJECTS WHICH ITA NO.1680/PUN/2015 MOTI UDHARAM PANJABI 4 EXCLUSIVELY USED SUCH ASSETS. THEN THE COMMON ASSETS, W HICH ARE USED BY ALL THE ELIGIBLE AND NON-ELIGIBLE PROJECTS, SHOULD BE SEPARATELY IDENTIFIED. DEPRECIATION ON SUCH COMMONLY USED ASSETS SHOULD BE ALLOCATED AMONGST THE THREE PROJECTS INCLUDING TWO ELIGIBLE UNITS. THE LD. CIT(A) ALLOCATED THE TOTAL AMOUNT OF DEPRE CIATION IN THE RATIO OF INCREASE IN INVENTORY AS ADDED BY THE AMOUN T OF SALES. IN OUR CONSIDERED OPINION, THE MORE RATIONAL BASIS FOR ALLOCATION OF DEPRECIATION ON COMMON ASSETS IN THE GIVEN PECULIAR CIRCUM STANCES, IS INCREASE IN INVENTORY AS ADDED BY COST OF GOODS SOLD. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO T HE FILE OF AO FOR COMPUTING THE DISALLOWANCE OF DEPRECIATION IN THE MANNE R AFORESTATED, AFTER PROPER OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. THE NEXT GROUND IN THE ASSESSEES APPEAL IS AGAINST THE ENHANCEMENT OF ADDITION MADE BY THE LD. CIT(A) OUT OF SA LARIES AND WAGES. 7. THE ASSESSEE CLAIMED DEDUCTION ON ACCOUNT OF SALARY A ND WAGES TOTALLING TO RS.1.96 CRORE AND ODD, WHICH WAS BIFURCAT ED AMONGST THE THREE PROJECTS AT RS.62.03 LAKH UNDER THE HO, RS.92.01 LAKH UNDER SWISS COUNTY AND RS.15.75 LAKH UNDER SILVER MIST. THE AO OBSERVED THAT IN THE HO PROJECT, THE ASSESSEE WAS MAINLY IN LAND DEALINGS REQUIRING LESSER USE OF MANPOWER AS COMPARED TO THE USE OF MANPOWER NEEDED IN THE CONSTRUCTION PROJECTS, NAMELY, ELIGIBLE 80IB PROJECTS. APPLYING THE RATIO OF CLOSING STOCK OF THE THRE E PROJECTS OF THE ASSESSEE, THE AO MADE DISALLOWANCE OF RS.31,47,157/-. THE LD. CIT(A) APPLYING THE SAME YARDSTICK AS FOR DEPRECIATION, INC REASED THE AMOUNT OF DISALLOWANCE TO RS.52,80,650/-, AGAINST WHICH THE ASSESSEE HAS APPROACHED THE TRIBUNAL. ITA NO.1680/PUN/2015 MOTI UDHARAM PANJABI 5 8. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE R ELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE DID NOT APP ROPRIATELY ALLOCATE THE AMOUNT OF SALARY AND WAGES TO THE ELIGIBLE AND NON- ELIGIBLE PROJECTS. IT IS AN ADMITTED POSITION THAT UNDER HO PROJECT, THE ASSESSEE WAS MAINLY IN LAND DEALINGS AND DID NOT UNDE RTAKE ANY CONSTRUCTION ACTIVITY, WHICH WORK WAS BEING DONE UNDER TH E ELIGIBLE PROJECTS. IN SUCH A SCENARIO, THE ALLOCATION OF THE AMOUNT OF SALARY AND WAGES IS ALSO REQUIRED TO BE DONE ACCORDINGLY. FOLLOW ING THE VIEW TAKEN HEREINABOVE, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF AO FOR FIRSTLY ASCERTAINING THE A MOUNT OF SALARY AND WAGES RELATABLE TO SPECIFIC PROJECTS, NAMELY, T HE HO, SWISS COUNTY AND SILVER MIST, AND THEN THE COMMON AM OUNT OF SALARY AND WAGES, WHICH CANNOT BE SPECIFICALLY IDENTIFIED WITH A PARTICULAR PROJECT, SHOULD BE APPORTIONED IN THE RATIO OF IN CREASE IN INVENTORY AS ADDED BY THE AMOUNT OF COST OF GOODS SOLD UNDER THE THREE PROJECTS. NEEDLESS TO SAY, THE ASSESSEE WILL BE AL LOWED A REASONABLE OPPORTUNITY OF HEARING. 9. THE LAST EFFECTIVE GROUND OF THE ASSESSEES APPEAL IS A GAINST DISALLOWANCE U/S.14A TO THE TUNE OF RS.4,83,625/-. 10. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSEE DEBITED FINANCE CHARGES OF RS.2.02 CRORE AND ODD IN ITS PROFIT AND LOSS ACCOUNT, OUT OF WHICH A SUM OF RS.1.72 CRORE WAS ALLOCATED TO THE HO PROJECT. THE AO MADE ALLOCATION OF SUCH FINANCE CHARGES IN THE RA TIO OF CLOSING STOCK OF THE THREE UNITS, WHICH LED TO THE DISALLO WANCE OF RS.1.35 CRORE. THE LD. CIT(A) HELD THAT THE ACTION OF THE AO IN ALLOCATING FINANCE CHARGES TO THE HO AND THE OTHER TW O ELIGIBLE PROJECTS WAS NOT JUSTIFIED. HE HOWEVER INVOKED THE PROV ISIONS OF ITA NO.1680/PUN/2015 MOTI UDHARAM PANJABI 6 SECTION 14A AND COMPUTED DISALLOWANCE UNDER RULE 8D AT RS.4,83,625/-. THE ASSESSEE IS AGGRIEVED BY THE SUSTENA NCE OF ADDITION U/S.14A. THERE IS NO CROSS APPEAL BY THE REVEN UE AGAINST THE DELETION OF ADDITION OF FINANCE CHARGES. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL ON RECORD. CIRCULAR NO.37/2016 DATED 02-11-2016 PROVIDES THAT WHERE AN ASSESSEE IS ENTITLED TO DEDUCTION UNDER C HAPTER VIA OF THE ACT AND THE AO MAKES CERTAIN DISALLOWANCES, SUCH AS PERTAINING TO SECTION 32, 40(A)(IA), 40A(3) OR 43B ETC. WHICH LED TO INCREA SE IN THE AMOUNT OF PROFITS, THEN DEDUCTIONS IN RESPECT OF INCOME COV ERED UNDER CHAPTER VIA SHOULD BE ALLOWED ON RESULTANT ENHANC ED INCOME. THE EFFECT OF SUCH CIRCULAR IS THAT, IF THERE IS SOME INCREASE IN THE PROFIT BY VIRTUE OF CERTAIN ADDITIONS OR DISALLOWANCES MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF EXPENSES ETC., THEN THE ELIGIB LE INCOME FOR DEDUCTIONS UNDER CHAPTER VI OF THE ACT SHOULD BE EN HANCED ACCORDINGLY AND THE DEDUCTIONS SHOULD BE ALLOWED AT SUC H AN ENHANCED AMOUNT. UNDER SUCH CIRCUMSTANCES, WE SET ASID E THE IMPUGNED ORDER TO THIS EXTENT AND DIRECT THE AO TO AD D BACK THE AMOUNT OF SUCH DISALLOWANCE MADE BY THE LD. CIT(A) U/S 14A AND THEN ALLOW DEDUCTION U/S 80IB(10) OF THE ACT ACCORDINGLY. 12. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTI CAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 02 ND NOVEMBER, 2018. SD/- SD/- (VIKAS AWASTHY) (R.S. SYAL) /JUDICIAL MEMBER / VICE PRESIDENT PUNE; DATED : 02 ND NOVEMBER, 2018 ITA NO.1680/PUN/2015 MOTI UDHARAM PANJABI 7 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-12, PUNE. 4. / THE PR. CIT-11, PUNE 5. , , / DR B, ITAT, PUNE; 6. / GUARD FILE. // TRUE COPY // / BY ORDER, // TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE *