The DCIT, Circle-9, Surat V. M/s. Krishna Corporation, Surat

ITA 2018/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80496 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 31-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 12-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V K SINGH
• Keywords: Salary income
• Section: 143(3); 37(1); 194C; 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL CHATURVEDI , A.M.) I. T. A. NO. 2018 / AHD/ 20 1 1 (A SSESSMENT YEAR: 2007 - 08) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 9, SURAT V/S M/S. KRISHNA CORPORATION 07, MANINAGAR SOCIETY, ASHWANIKUMAR RO AD, SURAT (APPELLANT) (RESPONDENT) PAN: AAHFK8021C APPELLANT BY : SHRI V.K. SINGH, SR. D.R. RESPONDENT BY : NONE ( )/ ORDER DATE OF HEARING : 31 - 10 - 2014 DATE OF PRONOUNCEMEN T : 14 - 11 - 2014 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - V, SURAT DATED 28.04.2011 FOR A.Y. 2007 - 08. 2. ON THE DATE OF HEARING, NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT APP LICATION WAS FILED BY ASSESSEE. WE THEREFORE PROCEED TO DECIDE THE APPEAL ON THE BASIS OF MATERIAL ON RECORD EX PARTE QUA THE ASSESSEE. 3. THE FACTS AS CULLED OUT FROM THE MATERIAL ON RECORD ARE AS UNDER. ITA NO 2018/AHD/2011 . A.Y. 2007 - 08 2 4. ASSESSEE IS A PARTNERSHIP FIRM STATED TO BE ENGAGE D IN THE BUSINESS OF LAND AND B UILDING ORGANIZING AND ITS DEVELOPMENT. ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y. 07 - 08 ON 31.10.2007 DECLARING TOTAL INCOME OF RS. 41,19,490/ - . THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U NDER SECTION 143(3) VIDE ORDER DATED 30.12.2009 AND THE TOTAL INCOME WAS DETERMINED AT RS. 1,12,93,630/ - . AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO VIDE ORDER DATED 28.04.2011 ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEV ED BY THE AFORESAID ORDER OF CIT(A) REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 17,38,637/ - MADE BY THE A.O. ON A CCOUNT OF LAND LEVELING CHARGES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.15,22,000/ - MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF SUPERVISION ENGINEERING SALARY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.3,60,000/ - MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF VEHICLE EXPENSES. GROUND NO. 1 IS WITH RESPECT TO DELETION OF ADDITION OF RS. 17,38,637/ - ON ACCOUNT OF LAND LEVELING CHARGES. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAD SPENT RS. 26,14,000/ - ON LAND LEVELING EXPENSES. A.O NOTED THAT ASSESSEE HAD INCURRED THE EXPENSES IN CASH. FURTHER THE REPORT OF CONSULTING ENGINEER SUBMI TTED BY THE ASSESSEE TO JUSTIFY THE REQUIREMENT OF SOIL FOR LAND LEVELING DID NOT SHOW THE DATE OF SIGNING THE CERTIFICATE BY THE ENGINEER. A.O THEREFORE CONSIDERED 25% OF EXPENDITURE TO BE BOGUS AND DISALLOWED RS. 6,53,500/ - . A.O ASKED THE ASSESSEE TO EX PLAIN THE SYSTEM OF ACCOUNTING FOR APPORTIONING OF EXPENSES ON ACCOUNT OF LAND LEVELING TO WHICH ASSESSEE INTERALIA SUBMITTED THAT IT CLAIMED THE LAND LEVELING EXPENSES IN PROPORTION OF EVERY SALE OF SHOP/FLAT. ASSESSEE FURTHER INFORMED THAT IT HAD INCURR ED RS. 57,41,086 / - AS COST OF LAND FOR 4,80,291 SQ. F T S. AND HAD SOLD 90,596 SQ. F T S . OUT OF THE TOTAL PERMISSIBLE CONSTRUCTION AREA. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. HE ACCORDINGLY WORKED OUT THE ELIGIBLE DEDUCTION ON A CCOUNT OF EXPENSES AT RS. 4,98,197 AND DISALLOWED THE EXPENSES OF RS. 17,38,637/ - . . ITA NO 2018/AHD/2011 . A.Y. 2007 - 08 3 AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER: - 5.1. I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE SUBMISSION OF APPELLANT. I FIND THAT APPELLANT HAD FOLLOWED A PRO - RATA SYSTEM OF CLAIMING EXPENSES BY ALLOCATING PROPORTIONATE COST BETWEEN AREA SOLD AND AREA UNSOLD. THE APPELLANT HAD WORKED OUT THE CLOSING WORK IN PROGRESS AT RS .84,31,968/ - IN WHICH APPELLANT INCLUDED LAND LEVELING EXPENSES ON UNSOLD AREA AT RS.21,42,835/ - . SIMILARLY, THE APPELLANT HAD WORKED OUT THE TOTAL COST OF LAND AT RS.57,41,086/ - AND HAD SEPARATELY MAINTAINED THE LAND ACCOUNT. FOR THE 90596 SQ, FTS, SOLD D URING THE YEAR THE COST OF LAND AND LAND DEVELOPMENT FEES WORKED OUT AT RS.10,84,348/ - WERE DEBITED TO PROFIT & LOSS A/C. AGAINST SALES PRICE. THE AMOUNT OF RS.46,56,738/ - REPRESENTS THE COST OF LAND AND DEVELOPMENT FEES FOR UNSOLD AREA OF 3,89,695 SQ. FTS . THIS AMOUNT WAS SHOWN AS FIXED ASSETS WHICH IS EVIDENT FROM SCHEDULE OF FIXED ASSETS PLACED AT PAGE 18 OF THE PAPER BOOK. THEREFORE, THE APPELLANT HAD COMPLETELY ALLOCATED THE COST OF DEVELOPMENT FEES AND LAND LEVELING EXPENSES. THE ASSESSING OFFICER IS NOT CORRECT IN DISALLOWING EXPENSES WITHOUT ANY BASIS PARTICULARLY WHEN THE PAYMENT WAS MADE TO STATE GOVERNMENT AUTHORITIES. THE ADDITION OF RS, 17,38 , 637/ - IS ACCORDINGLY DELETED. THIS GROUNDS OF APPEAL IS ALLOWED. 6. AGGRIEVED BY THE ORDER OF CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. BEFORE US LD. D.R. RELIED ON THE ORDER OF A.O. 7. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS GIVEN A FINDING THAT ASSESSEE HAS FOLLOWED PRO - RATA SYSTEM OF CLAIMING EXPENSES BY ALLOCATING PROPORTIONATE COST BETWEEN AREA SOLD AND UNSOLD. WE FURTHER FIND THAT CIT(A) HAS HELD THAT A.O WAS NOT CORRECT IN DISALLOWING THE EXPENSES WITHOUT ANY BASIS PARTICULARLY WHEN THE PAYMENT WAS MADE TO STATE GOVERNMENT AUTH ORITIES. BEFORE US REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF CIT(A). IN VIEW OF THESE FACTS WE FIND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 2 ND GROUND IS WITH RESPEC T TO DELETION OF RS. 15,22,000/ - ON ACCOUNT OF SUPERVISION AND ENGINEERING CHARGES. 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT ASSESSEE HAD DEBITED SUPERVISION AND ENGINEERING CHARGES OF RS. 15,22,000/ - . THE ASSESSEE WAS ASKED TO PRODU CE THE EVIDENCE WITH RESPECT TO THE EXPENSES . O N THE BASIS OF DETAILS FILED BY THE ASSESSEE , A.O NOTICED THAT SALARY REGISTER FOR PAYMENT WAS NOT PRODUCED AND NO DETAILS FOR PAYMENT FOR RS. 5,03,500/ - WAS SUBMITTED. HE ITA NO 2018/AHD/2011 . A.Y. 2007 - 08 4 ALSO NOTICED THAT THE PERSONS TO WHO M THE ASSESSEE HAS STATED TO HAVE PAID THE AMOUNT AS SALARY HAD NOT DISCLOSED THE INCOME UNDER THE HEAD SALARY IN THEIR COMPUTATION OF INCOME AND MOST OF THE PERSONS H AD SHOWN INCOME FROM DIAMOND CUTTING AND POLISHING INCOME, BROKERAGE INCOME, AGRICULTURE INCOME. A.O WAS THUS OF THE VIEW THAT THE AMOUNT OF EXPENSES WERE CLAIMED TO HAVE BEEN MADE TO PERSONS FROM ENTIRELY DIFFERENT LINE OF BUSINESS AND HE WAS THEREFORE OF THE VIEW THAT ASSESSEE HAS NOT ESTABLISHED THE GENUINENESS OF EXPENDITURE. HE ACCORDINGL Y DISALLOWED THE CLAIM OF RS. 15,22,000/ - . AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER: - 6,1, THE NEXT GROUNDS OF APPEAL IS THE DISALLOWANCE OF SALARY PAID TO SUPERVISION AND EN GINEERING STAFF. THE ASSESSING OFFICER VIDE ORDER SHEET DTD. 11.12.2009 REQUIRED THE APPELLANT TO PROVE THE SERVICES RENDERED BY THE EMPLOYEES AND CONSULTANT. THE ASSESSEE SUBMITTED THE NAMES, COPIES OF INCOME - TAX RETURNS OF 10 EMPLOYEES WHOSE NAMES APPEAR ON PAGE 5 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER CONTENDS THAT APPELLANT FAILED TO PRODUCE SALARY REGISTER AND SOME OF THE DETAILS TO HIS SATISFACTION. THE ASSESSING OFFICER ALSO FOUND THAT SOME EMPLOYEES WERE ALSO HAVING BROKERAGE INCOME AND INCO ME FROM OTHER SOURCES. THE APPELLANT HAD ALSO PAID PROFESSIONAL FEES TO CONSULTING ENGINEERS AND THEREFORE, ACCORDING TO ASSESSING OFFICER, THE ENGINEERS AT DIFFERENT SITES WERE NOT REQUIRED. 6.2 DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE ME, THE A .R. OF THE APPELLANT SUBMITS THAT OUT OF 18 PERSONS ONE PERSON IS ENGINEER AND 17 PERSONS ARE SITE SUPERVISORS. IN THE 21 BUILDINGS UNDER CONSTRUCTION THE APPELLANT REQUIRES ATLEAST ONE PERSON AT ONE SITE TO LOOK AFTER THE QUALITY OF CONSTRUCTION AND PREVE NTION OF THEFT OF BUILDING MATERIAL WHICH IS ALMOST LYING IN THE OPEN LAND. THE APPELLANT SUBMITTED THE COPIES OF I. T. RETURNS, BALANCE SHEET AND CAPITAL A/C OF ALL THE PERSONS WHO HAD SHOWN THE SALARY INCOME IN THEIR INCOME - TAX RETURNS. REGARDING THE SER VICES OF CONSULTANT ENGINEERS IT WAS EXPLAINED THAT THE CONSULTANT NORMALLY PROVIDES THE DIRECTIONS, DEVOTE SOME TIME WHEN REQUIRED BUT CANNOT ATTEND THE DIFFERENT SITES OF THE APPELLANT DAILY AND ON PERMANENT BASIS. THEREFORE, ONE FULL TIME ENGINEER IS RE QUIRED TO HAVE PERMANENT ENGINEERING SERVICES AS THE PARTNERS OF THE APPELLANT FIRM ARE NOT QUALIFIED ENGINEERS. THE APPELLANT ALSO SUBMITTED THAT THE ASSESSING OFFICER CANNOT STEP IN TO THE SHOES OF THE APPELLANT TO DECIDE AS TO WHOSE SERVICES SHOULD BE O R SHOULD NOT BE UTILIZED TO CARRY OUT ITS BUSINESS AS THE LAW DOES NOT STIPULATE SUCH REQUIREMENT TO QUALITY ANY EXPENDITURE AS DEDUCTION U/S. 37(1) OF THE ACT. 6,3, I HAVE GONE THROUGH THE ASSESSMENT ORDER AS WELL AS THE SUBMISSION OF APPELLANT. I FIND TH AT APPELLANT HAD DISCHARGED THE ONUS LYING ON IT AND HAS ALSO PROVED THE SERVICES RENDERED BY 18 PERSONS EMPLOYED BY THE APPELLANT. ALL THE PERSONS TO WHOM SALARY WERE PAID ARE EXISTING ASSESSEES. THE ASSESSING OFFICER DID NOT MAKE ANY INQUIRY EITHER BY CALLING ANY OF THE EMPLOYEE U/S. 131 OF THE ACT, OR WITH THE HELP OF INSPECTOR AT THE ADDRESSES OF THE EMPLOYEES GIVEN BY THE APPELLANT. SINCE, THE APPELLANT CONSTRUCTED 21 BUILDINGS THE EMPLOYMENT OF 17 SITE SUPERVISORS AND ONE PERMANENT ENGINEER TO AVAIL SUPERVISION AND ENGINEERING SERVICES APPEARS TO BE QUITE REASONABLE. THE ASSESSING OFFICER THEREFORE, IS NOT CORRECT IN DISALLOWING 100% OF SALARY PAID TO SUPERVISORS AND ENGINEERS. THE FACT THAT THESE PERSONS HAVE OTHER INCOME DOES NOT ALTER THE SITUATIO N OF SERVICES RENDERED. IT IS THE PERSONAL MATTER OF THE EMPLOYEES. SUCH SERVICES ARE REQUIRED FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. IN VIEW OF THESE FACTS THE ADDITION OF RS. 15,22,000/ - IS DELETED. THIS GROUNDS OF APPEAL IS ALLOWED. 9. AGGRIEV ED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US, LD. D.R. TOOK US THROUGH THE FINDINGS OF A.O AND SUPPORTED HIS ORDER. ITA NO 2018/AHD/2011 . A.Y. 2007 - 08 5 10. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT BEFORE CIT(A) ASSESSEE HAD SUBMITT ED THAT DURING THE PERIOD THERE WERE 21 BUILDINGS UNDER CONSTRUCTION AND THE PERSONS WERE EMPLOYED AT THE SITE TO LOOK AFTER THE QUALITY OF CONSTRUCTION AND PREVENTION OF THEFT OF BUILDING MATERIAL. WE FIND THAT CIT(A) WHILE DELETING THE ADDITION HAS HELD THAT A.O DID NOT MAKE ANY ENQUIRY EITHER BY CALLING ANY OF THE EMPLOYEES U/S 131 OF THE ACT OR MADE ANY ENQUIRY WITH THE HELP OF INSPECTORS. HE HAS FURTHER NOTED THAT ALL THE PERSONS TO WHOM SALARY WAS PAID WERE EXISTING ASSESSEE. BEFORE US WE FIND THAT NO MATERIAL IS AVAILABLE ON R ECORD TO DEMONSTRATE AS TO LOCATION OF THE 21 BUILDINGS WHICH WERE UNDER CONSTRUCTION AND THEIR ADDRESSES. FURTHER NO MATERIAL HAS BEEN PLACED ON RECORD BY THE ASSESSEE TO CONTROVERT THE FINDINGS OF A.O. IT IS ALSO A FACT ON THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BUILDING , DEVELOPMENT AND THE SAME HAS NOT BEEN DOUBTED BY THE REVENUE. CONSIDERING THE TOTALITY OF THE FACTS WE ARE OF THE VIEW THAT THE A.O WAS NOT JUSTIFIED IN DISALLOWING THE ENTIRE EXPENSES AND AT THE SAME TIME C IT(A) WAS ALSO NOT FULLY JUSTIFIED IN DELETING THE ENTIRE ADDITION. CONSIDERING THE TOTALITY OF THE FACTS, WE AR E OF THE VIEW THAT ENDS OF JUSTICE SHALL BE MET IF ADDITION ON ACCOUNT OF SUPERVISION AND ENGINEERING CHARGES IS RESTRICTED TO RS. 5 LACS. WE DI RECT ACCORDINGLY. THUS THIS GROUND IS PARTLY ALLOWED. GROUND NO. 3 IS WITH RESPECT TO DELETION OF RS. 3,60,000/ - ON ACCOUNT OF VEHICLE EXPENSES. 11. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A.O NOTICED THAT AS SESSEE HAD DEBITED RS. 3,60,000 / - AS VEHIC LE EXPENSES. A.O NOTICED THAT ASSESSEE DID NOT OWN ANY VEHICLE DURING THE YEAR AND HE THEREFORE CONCLUDED THAT VEHICLE EXPENSES WERE INCURRED FOR RENTED VEHICLES. A.O WAS OF THE VIEW THAT EXPENSES WERE INCURRED ON HIRED VEHICLES AND THEREFORE ASSESSEE SHOU LD HAVE DEDUCTED TD S AND SINCE NO TDS WAS DEDUCTED, H E DISALLOWED THE CLAIM OF EXPENSES U/S 40(A)(IA) OF THE ACT. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) DELETED THE ADDITION BY HOLDING AS UNDER: - ITA NO 2018/AHD/2011 . A.Y. 2007 - 08 6 7.3 THE SUBMISSIO N OF APPELLANT THAT PROVISIONS OF SECTION 194C OF THE ACCT IS NOT APPLICABLE APPEARS TO BE CORRECT. SIMILARLY, THE CARS WERE TAKEN ON RENT TO PROVIDE THE FACILITIES TO PROSPECTIVE CUSTOMERS WHO INTEND TO VISIT THE SITE BEFORE BOOKING OF FLATS. THE APPELLAN T HAD RENDERED THE SERVICES IN ORDER TO PROCURE SALES FROM PROSPECTIVE CUSTOMERS. THE EXPENSES THEREFORE IS ELIGIBLE U/S. 37(1) OF THE ACT. THE ASSESSING OFFICER HAS NOT SUBMITTED ANY COMMENTS IN A REMAND PROCEEDINGS. I, THEREFORE, ACCEPT THE CONTENTIONS O F THE ASSESSEE. ACCORDINGLY, THE ADDITION OF RS.3,60,000/ - IS HEREBY DELETED AND THE GROUND OF APPEAL IS ALLOWED. 12. AGGRIEVED BY THE ORDER OF CIT(A), REVENUE IS NOW IN APPEAL BEFORE US. BEFORE US LD. D.R. SUPPORTED THE ORDER OF A.O. 13. WE HAVE HEARD THE LD. D.R. AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT CIT(A) HAD CALLED FOR THE COMMENTS IN THE REMAND PROCEEDINGS BUT A.O DID NOT SUBMIT ANY COMMENTS. CIT(A) HAS FURTHER HELD THE EXPENSES TO BE ELIGIBLE FOR DEDUCTION U/S 37(1) OF THE ACT. WE FURTHER FIND THAT A.O HAS PRESUMED THAT THE EXPENSES INCURRED WERE HIRE CHARGES AND THEREFORE TDS WAS DEDUCTIBLE. BEFORE US NO MATERIAL HAS BEEN PLACED ON RECORD BY THE REVENUE TO CONTROVERT THE SUBMISSIONS OF THE CIT(A). WE THEREFORE FIND NO REASON TO INTERFERE WITH T HE ORDER OF CIT(A) AND THUS THIS GROUND OF REVENUE IS DISMISSED. 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 14 - 11 - 201 4 . SD/ - SD/ - (G.C.GUPTA) (ANIL CHA TURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD