New Datta Builders and BP Sangale JV Regd., Kolhapur V. Deputy Commissioner of Income-tax,

ITA 2086/PUN/2013

• Counselvise Citation: 208624514 RSA 2013
• Duration Of Justice: 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 29-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Business expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2086/PN/2013 (ASSESSMENT YEAR 2010-11) NEW DATTA BUILDERS AND B.P. SANGALE J.V. REGD. 680 E-WARD, SHAHUPURI 3 RD LANE, KOLHAPUR 416001 MAHARASHTRA .. APPELLANT PAN NO.AAFFN 1892C VS. DCIT, CIRCLE-2, KOLHAPUR .. RESPONDENT ASSESSEE BY : NONE REVENUE BY : SHRI B.C. MALAKAR DATE OF HEARING : 20-10-2014 DATE OF PRONOUNCEMENT : 20-10-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 13-09-2013 OF THE CIT(A), KOLHAPUR RELA TING TO ASSESSMENT YEAR 2010-11. 2. DESPITE SERVICE OF NOTICE THROUGH RPAD NONE APPE ARED ON BEHALF OF THE ASSESSEE. THEREFORE, THIS APPEAL IS BEING DISPOSED OF ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEARING THE LD. DEPARTMENTAL REPRESENTATIVE. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A PARTNERSHIP FIRM CONSISTING OF TWO PARTNERS AND IS ENGAGED IN THE 2 BUSINESS OF CIVIL CONSTRUCTION. IT FILED ITS RETUR N OF INCOME ON 02-09-2010 DECLARING TOTAL INCOME OF RS.29,40,820/- . THE ASSESSEE FIRM HAS UNDERTAKEN CONSTRUCTION OF HOSPIT AL BUILDING, I.E., SHREE CHHATRAPATI SHIVAJI MAHARAJ RUGNALAYA, SOLAPUR AND HAS ADOPTED PROJECT COMPLETION METHOD FOR PROJECT WORK FROM A.YRS. 2005-06 TO 2009-10. THE ASSESSEE HAS FILED NIL RETURN OF INCOME FOR THE ABOVE ASSESSMENT YEARS. DURING THE CURRENT ASSESSMENT YEAR, THE PROJECT IS COMPLETED AND THE T OTAL CONTRACT RECEIPT AND TDS HAVE BEEN SHOWN BY THE ASSESSEE FIR M. 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED FROM THE TRADING AND PROFIT AND LOSS ACCOU NT FOR THE YEAR ENDING 31-03-2005 TO 31-03-2009 THAT THE ASSESSEE F IRM HAS INCURRED EXPENSES OF RS.12,22,660/- AND CLAIMED SUC H EXPENSES AGAINST THE ESTIMATED PROFIT. ACCORDING TO THE AO FROM THE PLAIN READING OF THE AGREEMENT ENTERED INTO BETWEEN THE P ARTIES TO THE JOINT VENTURE, THE ASSESSEE FIRM IS ENTITLED TO GET ESTIMATED PROFIT EQUAL TO AMOUNT OF TDS OR 2% OF THE CONTRACT RECEIP T WHICHEVER IS HIGHER. HE OBSERVED THAT THE ASSESSEE WAS RIGHT TO GET ESTIMATED PROFIT ON RS.46,82,145/- AND AGAINST SUCH PROFIT LEGITIMATE BUSINESS EXPENSES ARE TO BE ALLOWED. 3.2 DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE HAS CLAIMED EXPENSES OF RS.12,22, 660/- WHICH ACCORDING TO HIM ARE NOT TO BE BORNE BY THE ASSESSE E BUT BY THE CONTRACTOR AS PER THE TERMS OF AGREEMENT. THE ASSE SSEE FIRM HAS NOT EXECUTED ANY WORK AND THE ENTIRE WORK IS EXECUT ED BY M/S. 3 NEW DATTA BUILDERS. THEREFORE, ACCORDING TO THE AO THE FOLLOWING EXPENSES DEBITED BY THE ASSESSEE SHOULD HAVE BEEN BORNE BY M/S. NEW DATTA BUILDERS ONLY : SR.NO. PARTICULARS EXP. FROM 2004-05 TO 2009-10 (RS.) 1 BANK INTEREST & COMMISSION 1,34,399/- 2 MAINTENANCE 5,44,372/- 3 ROYALTY 65,089/- 4 RECOVERY 9,000/- TOTAL 7,52,860/- 3.3 ACCORDING TO THE AO AS PER THE TERMS OF AGREEME NT, THE ASSESSEE IS ENTITLED TO RECEIVE THE ESTIMATED PROFI T AS DECIDED IN THE AGREEMENT. HE NOTED THAT THE ASSESSEE HAS RECE IVED THAT MUCH AMOUNT OF TDS AND CLAIMED SUCH TDS IN THE RETURN OF INCOME. HE, THEREFORE, HELD THAT THE ASSESSEE HAS NOT SHOWN THE ACTUAL PROFIT AND THE ASSESSEE HAS ITSELF CONFIRMED THE DI FFERENCE IN PROFIT AT RS.5,18,663/-. THE AO ACCORDINGLY MADE A DDITION OF RS.5,18,663/-. 4. BEFORE CIT(A) THE ASSESSEE FILED THE INCOME AND EXPENDITURE ACCOUNT FOR THE YEARS INVOLVED. IT WAS SUBMITTED THAT THE AO HAS WRONGLY DISALLOWED THE EXPENSES WHI CH WERE INCURRED FOR BUSINESS PURPOSES. AS REGARDS THE ADD ITION OF RS.5,18,663/-, IT WAS SUBMITTED THAT THE SAME IS NO T JUSTIFIED. THE ASSESSEE ALSO CHALLENGED THE ACTION OF THE AO IN NO T ALLOWING INTEREST ON CAPITAL AT RS.11,400/- AND REMUNERATION TO PARTNERS AT RS.3 LAKHS. 5. HOWEVER, THE LD.CIT(A) REJECTED ALL THE GROUNDS RAISED BY THE ASSESSEE BY HOLDING THAT THE ASSESSEE HAS NOT E XPLAINED AS TO 4 HOW THE EXPENSES OF RS.7,52,860/- RELATED TO HIS BU SINESS AND WHY THIS SHOULD NOT BE PAID BY THE SUB-CONTRACTOR. SIMILARLY, HE SUSTAINED THE ADDITION OF RS.5,18,663/- ON THE GROU ND THAT ON A TOTAL CONTRACT RECEIPT OF RS.20,83,36,122/- THE ASS ESSEE HAS RETURNED NET PROFIT OF RS.29,40,822/- WHICH IS JUST 1.4% OF THE TURNOVER AND EVEN MUCH LESS THAN THE MINIMUM PRESCR IBED PERCENT U/S.44AD. HE FURTHER NOTED THAT THE ASSESS EE COULD NOT GIVE ANY SUPPORTING DOCUMENT. SIMILARLY, HE ALSO C ONFIRMED THE DISALLOWANCE OF INTEREST ON CAPITAL AND REMUNERATIO N TO PARTNERS AT RS.11,400/- AND RS. 3 LAKHS RESPECTIVELY WITHOUT ASSIGNING ANY REASONS. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LEARNED A.O. HAS ERRED IN LAW AND ON MERIT IN DISALLOWING THE EXPE NSES ACTUALLY INCURRED TOWARDS, A) BANK INTEREST & COMMISSION RS.1,34,399/- B) MAINTENANCE RS.5,44,372/- C) ROYALTY RS.65,089/- D) RECOVERY RS.9,000/- TOTAL RS. 752860/- SINCE THESE ARE INCURRED FOR BUSINESS PURPOSE SHOULD ALLOW FULLY. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LEARNED A.O. HAS ERRED IN LAW AND ON MERIT IN MAKING ADDING TO THE INCOME OF RS.518663/-. ON ESTIMATED BASIS THEREFORE SHO ULD BE DELETED TOTALLY. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LEARNED A.O. HAS ERRED IN LAW AND ON MERIT IN NOT AL LOWING INTEREST ON CAPITAL RS.11400/- & REMUNERATION TO PART NERS RS.3,00,000/-THEREFORE SHOULD BE ALLOWED. 4. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER, AMEND OR DE LETE ANY OF THE GROUNDS OF APPEAL BEFORE THE LEARNED CIT (A). 5 7. WE HAVE CONSIDERED THE ARGUMENTS ADVANCED BY THE LD. DEPARTMENTAL REPRESENTATIVE AND PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). THERE IS NO DIS PUTE TO THE FACT THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGE D IN THE BUSINESS OF CIVIL CONSTRUCTION AND IS FOLLOWING PR OJECTION COMPLETION METHOD. WE FIND THE ASSESSING OFFICER MADE ADDITION OF RS.7,52,860/- ON THE GROUND THAT THE AS SESSEE FIRM HAS NOT EXECUTED ANY WORK AND THE ENTIRE WORK IS EXECUT ED BY M/S. NEW DATTA BUILDERS AND THEREFORE THESE EXPENSES SHO ULD HAVE BEEN BORNE BY M/S. NEW DATTA BUILDERS ONLY. SIMILA RLY, HE MADE ADDITION OF RS.5,18,663/- ON THE GROUND THAT THE PR OFIT DECLARED BY THE ASSESSEE IS VERY LOW. WE FIND THE LD.CIT(A) CONFIRMED THE ABOVE TWO ADDITIONS ON THE GROUND THAT THE ASSE SSEE COULD NOT EXPLAIN PROPERLY AS TO HOW THESE EXPENSES ARE RELAT ED TO BUSINESS AND WHY THIS SHOULD NOT BE PAID BY THE SUB-CONTRACT OR. HE ALSO REJECTED THE CLAIM OF INTEREST ON CAPITAL AND REMUN ERATION TO PARTNERS AT RS.11,400/- AND RS.3 LAKHS RESPECTIVELY WITHOUT ASSIGNING ANY SPECIFIC REASONS FOR DISALLOWANCE OF THE SAME. THE ORDER OF THE CIT(A) ON ALL THESE ISSUES IN OUR OPIN ION IS NOT A SPEAKING ORDER. CONSIDERING THE TOTALITY OF THE FA CTS OF THE CASE, WE RESTORE THE ISSUE TO THE FILE OF THE CIT(A) WITH A DIRECTION TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO SUBSTA NTIATE HIS CASE AND PASS A SPEAKING ORDER. WE HOLD AND DIRECT ACCO RDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLO WED FOR STATISTICAL PURPOSES. 6 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 20-10-2014. SD/- SD/- (R.S.PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: 20 TH OCTOBER, 2014 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. THE CIT(A), KOLHAPUR 4. THE CIT, KOLHAPUR 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE