The ITO, Ward-4(1), Baroda V. M/s Meeti Investment & Consultancy Services Pvt. Ltd., Baroda

ITA 1714/AHD/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67988 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 21-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Assessee Lawyers: M K PATEL
• Keywords: Onus to prove

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD D BENCH BEFORE: SRI D.K TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTAN T MEMBER INCOME TAX OFFICER, WARD-4(1) BARODA (APPELLANT) VS M/S MEETI INVESTMENT AND CONSULTANCY PVT. LTD, 301, PANCHSHEEL, 72, SAMPATRAO COLONY, ALKAPURI, BARDOA PAN: AABCM3425B (RESPONDENT) REVENUE BY: SRI K.C. MATHEWS, SR.D.R. ASSESSEE BY: SRI M.K. PATEL, A.R. DATE OF HEARING : 25-11-2013 DATE OF PRONOUNCEMENT : 29-11-20 13 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER:- THIS IS THE REVENUES APPEAL AGAINST THE ORDER OF LD. CIT(A)-III BARODA DATED 22-02-2010. ITA NO. 1714/AHD/2010 ASSESSMENT YEAR 2006-07 I.T.A NO.1714/AHD/2010 A.Y. 2006-07 PAGE NO ITO VS. M/S. MEETI INVESTMENT AND CONSULTANCY PVT. LTD. 2 2. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS OF APPE AL:- 1. THE CIT(A) ERRED IN LAW AND ON FACTS, IN DIRECT ING ASSESSING OFFICER TO DELETE THE ADDITION OF RS. 14,13,600/- I N HOLDING THAT THE ASSESSEE WAS NOT A CONTRACTOR AND THE ASSESSEE WA S NOT GOVERNED BY AS-7 OF THE GUIDELINES OF INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, IGNORING THE UNDERLYING FACT THAT THE ASSESS EE HAD PERFORMED AND UNDERTAKEN ALL ACTIONS AS A CONTACTOR AND CAMOU FLAGED THE PERFORMANCE AS DEVELOPER. 2. THE CIT(A) ERRED IN LAW AND ON FACTS IN DELETING INTEREST DISALLOWANCE OF RS. 13,62,808/- OVERLOOKING THE FAC T THAT THE COMPANY HAD DIVERTED THE FUNDS FOR THE DIRECTORS OF THE COM PANY, WHICH CAUSED DELAYED PAYMENT TO AND CHARGING OF INTEREST BY THE MUNICIPAL CORPORATION. 3. THE FIRST GROUND RELATES TO REJECTION OF BOOKS O F ACCOUNT AND APPLYING OF RATE OF 8 % ON THE BOOKING ADVANCES. 4. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS ENG AGED IN THE BUSINESS OF SALE/PURCHASE OF TDR, INCOME BY WAY OF STALLAGE AND CONSTRUCTION ACTIVITY. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT ASS ESSEE HAD RECEIVED ADVANCED BOOKING AMOUNT ON ACCOUNT OF THE CONSTRUCT ION ACTIVITY AND THE WIP WAS SHOWN AT RS. 1,99,97,296/-. HOWEVER, THE A SSESSEE HAD NOT SHOWN ANY PROFIT ON THE GROUND THAT IT WAS FOLLOWING PROJ ECT COMPLETION METHOD. THE AO REJECTED THE ASSESSEES METHOD AND HELD THAT AS PER AS-7, IT HAS TO FOLLOW PERCENTAGE COMPLETION METHOD. ACCORDINGLY, HE REJECTED THE BOOKS OF ACCOUNT AND APPLIED PROFIT RATE OF 8% ON BOOKING ADVANCE OF RS. 1,76,70,003/- AND MADE ADDITION OF RS. 14,13,600/- . I.T.A NO.1714/AHD/2010 A.Y. 2006-07 PAGE NO ITO VS. M/S. MEETI INVESTMENT AND CONSULTANCY PVT. LTD. 3 5. LD. CIT(A) DELETED THIS ADDITION FOLLOWING THE O RDER OF HIS PREDECESSOR FOR ASSESSMENT YEAR 2005-06 IN ASSESSEE S OWN CASE WHEREIN IT WAS HELD THAT ASSESSEE WAS NOT A CONTRACTOR BUT ONL Y A REAL ESTATE DEVELOPER ON WHOSE CASE AS-7 WOULD NOT BE APPLICABLE. SINCE THE ORDER PASSED BY LD. CIT(A) FOR ASSESSMENT YEAR 2005-06 IN ASSESSEES OW N CASE HAS BEEN UPHELD BY THE TRIBUNAL VIDE ITS ORDER DATED 03-02-2012 IN ITA NO. 2152/AHD/2008 DATED 03/02/2012 BY OBSERVING AS UNDER:- 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) TH AT IN THE PRESENT CASE, THE ASSESSEE WAS NOT A CONTRACTOR BUT WAS A D EVELOPER WHO AWARDS CONTRACTS TO DIFFERENT CONTRACTORS FOR EXECU TING CIVIL, ELECTRICAL, PLUMBING WORK ETC. THEREFORE, ACCOUNTIN G STANDARD IN THE PRESENT CIRCUMSTANCES AND FACTS OF THE CASE I.E. AS -7 CANNOT BE MADE APPLICABLE. ACCOUNTING STANDARD AS-9 WHICH HAS BEEN REPRODUCED BY THE LD. CIT(A) AND HAS BEEN DISCUSSED AT PAGES 4-8 OF HIS ORDER IS APPLICABLE IN THE PRESENT CIRCUMSTANCES AND FACTS O F THE CASE. MOREOVER, IT HAS NOT BEEN CONTROVERTED BY THE LD. D R APPEARING FOR THE REVENUE THAT THE ASSESSEE HAD AWARDED THE CONTR ACTORS TO VARIOUS OTHER CONTRACTORS. ALSO IT HAS NOT BEEN CONTROVERTE D THAT THERE IS NO CONSTRUCTION ACTIVITY CARRIED OUT BY THE ASSESSEE D URING THE YEAR AND THERE WAS A DISPUTE OF THE PARTIES WHO HAD FILED CI VIL SUIT IN MUMBAI CIVIL COURT. THE ASSESSEE HAD RECEIVED THE ADVANCES WHICH ARE DULY REFLECTED IN THE BALANCE-SHEET OF THE ASSESSEE. THE RE IS NO CERTAINTY OF THE REVENUE RECOGNITION AT THIS STAGE. MOREOVER, AL L THE SIGNIFICANT RISKS AND THE OWNERSHIP AT THIS JUNCTURE VEST IN TH E HANDS OF THE OWNER I.E. THE ASSESSEE AND THEY HAVE NOT BEEN TRANSFERRE D TO THE BUYER OR THE PROPOSED BUYER. THEREFORE, IN THE CIRCUMSTANCE AND FACTS OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A), WH ICH APPEARS TO BE QUITE REASONED ONE AND HE HAS JUSTIFIED IN REVERSIN G THE ORDER OF THE AO ON THE ISSUE. THUS, GROUND NO. 1 OF THE REVENUE IS DISMISSED. WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. I.T.A NO.1714/AHD/2010 A.Y. 2006-07 PAGE NO ITO VS. M/S. MEETI INVESTMENT AND CONSULTANCY PVT. LTD. 4 6. GROUND NO. 2 RELATES TO DISALLOWANCE OF INTEREST OF RS. 13,62,808/-. AO WHILE MAKING THIS DISALLOWANCE HAS OBSERVED AS U NDER:- 4. INTEREST EXPENSES. 4. 1 'ON GOING THROUGH THE PROFIT AND LOSS ACC OUNT FILED WITH THE RETURN OF INCOME, IT IS SEEN THAT A SUM OF RS 15,00 ,000/- IS DEBITED AS INTEREST PAID TO M.C.G.M. AND FURTHER RS.6223/- DE BITED AS INTEREST PAID. FROM THE BALANCE SHEET, IT IS SEEN THAT THE ASSESSEE HAS GIVEN LOANS AND ADVANCES TO THE TUNE OF RS.1,69 , 32,750/- TO VARIOUS PERSONS. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS REGAR DING THE PERSONS TO WHOM SUCH LOANS AND ADVANCES WERE GIVEN, ALONG WITH THE PURPOSE OF ADVANCE AND THE INTEREST CHARGED. IN CASE NO INTERE ST WAS CHARGED, THE ASSESSEE WAS ASKED TO GIVE THE REASONS FOR THE SAME . FROM THE DETAILS FURNISHED, IT IS SEEN THAT LOANS AND ADVANCES ALSO INCLUDE THE FOLLOWING:- SR. NO. PAID TO AMOUNT PURPOSE 1. PARE SH BHUTA (HUF) 15,00,000 DEPOSIT GUEST HOUSE 2. HARSHA BHUTA 25,00,000 DEPOSIT MUMBAI OFFICE 3. JAYSHREEBEN BHUTA 3,70 , OOO MRS. J, P. BHUTA 4 ABHI BUILDERS 5,00,000 FOR PURCHASE OF PROPERTY 5 DILIP PANDIT 1,65,000 ADVANCE 6 DWARKSH CORPORATION 2,25,125 FOR PURCHASE OF PROPERTY. 7 UDAY DESAI 1,35,725 FOR SHARE TRADING AT RAJKOT. 8 ANIK SECURITY & FINANCE LTD. 6,53,572 ADVANCE I.T.A NO.1714/AHD/2010 A.Y. 2006-07 PAGE NO ITO VS. M/S. MEETI INVESTMENT AND CONSULTANCY PVT. LTD. 5 9 A.M INVESTMENT 23,88,105 FOR PURCHASE OF SHARES. 10 ARVINDBHAI 50,000 ADVANCE 11 H.C. MEHTA 3,00,000 FOR PURCHASE OF SHARES 12 PRAVINKANT 1,00,000 FOR PURCHASE OF SHARES 13 SHRUTI INVESTMENT 1,97,862 FOR PURCHASE OF SHARES TOTAL 90,85,389 4.2 IT IS SEEN THAT MOST OF THE ADVANCES HAVE REMA INED OUTSTANDING FOR THE ENTIRE YEAR. THE ASSESSEE HAS PAID INTEREST OF RS.15,00,000/- @15% ON THE UNPAID PREMIUM AMOUNT OF RS.1 CRORE TO M.C G M. (MUNICIPAL CORPORATION OF GREATER MUMBAI). AS FAR A S THE ADVANCES GIVEN BY THE ASSESSEE ARE CONCERNED, NO INTEREST HA S BEEN CHARGED. FURTHER, THE ADVANCES GIVEN FOR PURCHASE OF SHARES OR FOR PURCHASE OF PROPERLY APPEARED AS OPENING BALANCE AS ON 1 ST APRIL, 2005 AND THE SAME AMOUNTS ARE SHOWN AS CLOSING BALANCE AS ON 31 ST MARCH 2006. THIS MEANS THAT NO TRANSACTION WITH REFERENCE TO TH E ADVANCE GIVEN HAS TAKEN PLACE DURING THE YEAR UNDER CONSIDERATION. MOREOVER, NO JUSTIFICATION HAS BEEN GIVEN FOR THE H UGE INTEREST FREE DEPOSITS GIVEN TO SMT. HARSHA BHUTA, SMT. JAYSHR EE BHUTA AND PARESH BHUTA (HUF), PERSONS SPECIFIED U/S.40A(2)( B) OF THE ACT. UNDER THE CIRCUMSTANCES, THE ENTIRE OF RS.15.06, 203/- CANNOT BE ALLOWED AS A DEDUCTION, AS CLAIMED BY THE ASSESSEE. THE ASSESSEE HAS PAID INTEREST @ 15% ON THE UNPAID PREMIUM, BUT HAS NOT CHARGED ANY INTEREST ON THE SUM OF RS.90.95 LAKHS ADVANCED (AS WORKED ABOVE). ADOPTING THE RATE OF INTEREST AT 15% THE AMOUNT OF RS. 13,62,808/- IS DISALLOWED OUT OF THE INTEREST EXPEN SES AS THE ADVANCES COULD NOT BE ESTABLISHED TO HAVE BEEN GIVEN FOR THE PURPOSE OF BUSINESS.. IN THIS REGARD RELIANCE IS ALSO PLACED O N THE FOLLOWING DECISIONS:- (1) PHALTHAN SUGAR WORKS LTD. CWT(208 ITR 989)(BOM .) (2) CIT VS. H.R. SUGAR FACTORY LTD (187 ITR 363)( ALL.) I.T.A NO.1714/AHD/2010 A.Y. 2006-07 PAGE NO ITO VS. M/S. MEETI INVESTMENT AND CONSULTANCY PVT. LTD. 6 (3) INDIAN METAL & FERRO ALLOYS CO. VS CIT (193 ITR 344) (ORI) THE HONOURABLE JUDICIAL AUTHORITIES IN THE ABOVE CA SES HAVE HELD THAT EVEN IN CASE INTEREST FREE LOANS ARE GIVEN TO I TS ASSOCIATE CONCERNS, IT SHALL BE PRESUMED THAT THE ASSESSEE WOULD HAVE NOT RAISED INTEREST BEARING LOANS CONSIDERING THAT THE AMOUNT OF INTERE ST FREE LOANS ADVANCED TO ASSOCIATE CONCERNS WOULD HAVE BEEN AVAI LABLE WITH THE ASSESSEE FOR ITS BUSINESS PURPOSE. ADDITION RS.L3.62.808/- 7. LD. CIT(A) HAS DELETED THIS DISALLOWANCE BY OBSE RVING AS UNDER:- I HAVE GIVEN CAREFUL CONSIDERATION TO THE SU BMISSIONS AND TO THE FACTS OF THE CASE. THE APPELLANT HAS PAID RS. 15,00 ,000/- TO MCGM AS INTEREST. IT IS FURTHER SEEN THAT IT HAS NOT PAID ANY INTEREST ON ADVANCE RECEIVED ON BOOKING AND ALSO ON UNSECURED LOAN. SEC URED LOAN IS ONLY TO THE EXTENT OF RS. 2,34,000/-RECEIVED AGAINST VEH ICLE. THOUGH THE ONUS TO PROVE THAT INTEREST BEARING FUND HAS NOT BE EN UTILIZED FOR NON BUSINESS PURPOSE IS ON THE APPELLANT, BUT ON THE F ACTS OF THE APPELLANT'S CASE, IT DOES NOT APPEAR THAT ANY INTER EST BEARING FUND HAS BEEN UTILIZED FOR NON BUSINESS PURPOSE. INTEREST HA S NOT BEEN PAID ON ANY LOAN. IT HAS BEEN PAID ON OVER DUE PREMIUM INST ALLMENT. THUS, IT CANNOT BE SAID THAT ANY INTEREST HEARING BORROWED F UND HAS BEEN UTILIZED FOR GIVING INTEREST FREE ADVANCE, WHICH MA Y OR MAY NOT BE FOR BUSINESS PURPOSE. HOWEVER, THIS ISSUE BECOMES IMMAT ERIAL IF NO INTEREST HAS BEEN PAID ON ANY BORROWED FUND. PROPO RTIONATE INTEREST, IF ANY CAN BE DISALLOWED DEPENDING ON THE FACT OF T HE CASE, BUT AN ASSESSEE CANNOT BE FORCED TO EARN INCOME. TH EREFORE ON THE FACTS OF THE CASE THERE IS NO JUSTIFICATIO N FOR DISALLOWANCE ON THIS COUNT. ACCORDINGLY, THIS GROUND IS ALLOWED. SINCE THE ORDER OF LD. CIT(A) DURING THE ASSESSMENT YEAR 2005-06 IN ASSESSEES OWN CASE ON SIMILAR FACTS WAS UPHELD BY TRIBUNAL VIDE ITS ORDER DATED 03-02-2012, BY OBSERVING AS UNDER:- 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAD MADE THE PAYMENT OF INTEREST ON THE DELAYED PAYMENT OF INSTA LLMENTS PAYABLE BY I.T.A NO.1714/AHD/2010 A.Y. 2006-07 PAGE NO ITO VS. M/S. MEETI INVESTMENT AND CONSULTANCY PVT. LTD. 7 THE ASSESSEE TO MCGM FOR THE OFFICE PREMISES. THE A SSESSEE HAD NOT RAISED ANY BORROWINGS ON WHICH INTEREST IS PAYABLE. THEREFORE, THERE IS NO QUESTION OF DIVERSION OF INTEREST BEARING FUN DS TO INTEREST FREE ADVANCES. IN THE CIRCUMSTANCES AND FACTS OF THE CAS E, WE FIND NO ERROR IN THE ORDER OF THE LD. CIT(A), WHO HAS RIGHTLY ALL OWED THE CLAIM OF THE ASSESSEE BY REVERSING THE ORDER OF ASSESSING OF FICER ON THE ISSUE. THUS, GROUND NO. 2 OF THE REVENUE IS DISMISSED. WE FEEL NO NEED TO INTERFERE WITH THE ORDER PASSED BY LD. CIT(A) AND THE SAME IS HEREBY UPHELD. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER J UDICIAL MEMBER AHMEDABAD : DATED 29/11/2013 AK / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,