M/s. Dugar Housing Development Finance India Limited, CHENNAI V. ACIT, CHENNAI

ITA 2208/CHNY/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58056 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-03-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 26-09-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V D GOPAL
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. 2208/(MDS)/2007 ASSESSMENT YEAR : 1999-2000 DUGAR HOUSING DEVELOPMENT FINANCE INDIA LIMITED, (FORMERLY KNOWN AS M/S. J.PAQ SOLUTIONS LTD.), DUGAR TOWERS, 34(NEW), MARSHALLS ROAD, CHENNAI 600 008. PAN AAACJ 9857 B VS. THE ASST. COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-II(3), CHENNAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.D .GOPAL, ADVOCATE RESPONDENT BY : SHRI SHAJI P. JACOB, IRS, ADDL. COMMISSIONER OF INCOME-TAX DATE OF HEARING : 1 ST MARCH, 2012 DATE OF PRONOUNCEMENT : 22 ND MARCH, 2012 O R D E R PER DR.O.K.NARAYANAN, VICE-PRESIDENT: THIS APPEAL FILED BY THE ASSESSEE RELATES TO THE ASSESSMENT YEAR 1999-2000. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE ITA 2208/07 :- 2 -: COMMISSIONER OF INCOME-TAX(APPEALS)XII AT CHENNAI DATED 18.6.2007 AND ARISES OUT OF THE ASSESSMENT COMPLETE D UNDER SEC.143(3) READ WITH SEC.147 OF THE INCOME-TAX ACT, 1961. 2. THE FIRST GROUND RAISED BY THE ASSESSEE IN THE PRESENT APPEAL IS THAT THE COMMISSIONER OF INCOME-TAX(APPEA LS) FAILED TO APPRECIATE THAT THE ASSESSEE HAD PAID ALL THE PF AN D ESI DUES PERTAINING TO THE MONTHS OF APRIL, 1998 TO FEBRUARY , 1999 BEFORE 31.3.1999. IT IS EVEN BEFORE THE LAST DAY OF THE A CCOUNTING PERIOD AND THE DUES FOR THE MONTH OF APRIL, 1999 WAS PAID IN THE FIRST WEEK OF MAY, 1999. IT IS THE CASE OF THE ASSESSEE, THER EFORE, THAT IN VIEW OF THE ABOVE FACTS, THE COMMISSIONER OF INCOME-TAX( APPEALS) OUGHT TO HAVE FOLLOWED THE JUDGMENT OF THE HONBLE SUPREM E COURT IN THE CASE OF QUALITY MILK FOODS LTD. WHEREIN THE COURT H AS HELD THAT THE AMENDMENT BROUGHT IN BY THE FINANCE ACT, 2003 IS RE TROSPECTIVE. 3. WE CONSIDERED THIS ISSUE IN DETAIL. WHEN THE DA TES OF PAYMENTS, AS EXPLAINED BY THE ASSESSEE ARE EXAMINED , WE FIND THAT THE ASSESSEE HAS PAID ALL THE ESI & PF DUES BEFORE THE APPROPRIATE DATE, WHICH ENABLES THE ASSESSEE TO CLAIM DEDUCTION FOR SUCH PAYMENTS. THEREFORE, THE ASSESSING AUTHORITY IS DI RECTED TO VERIFY THE DATES OF PAYMENTS WITH REGARD TO PF & ESI AND I F ON VERIFICATION ITA 2208/07 :- 3 -: HE IS SATISFIED WITH THE DATES OF PAYMENTS, GRANT D EDUCTION IN THE LIGHT OF THE BINDING JUDGMENT OF THE HONBLE SUPREM E COURT. 4. THE SECOND ISSUE RAISED BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME-TAX(APPEALS) SHOULD HAVE BEE N PLEASED TO GRANT HIGHER DEPRECIATION ON VEHICLES BECAUSE THE A SSESSEE WAS DOING THE BUSINESS OF LEASING AND THE VEHICLES HAVE BEEN USED BY THE LESSEES IN THEIR BUSINESS OF RUNNING THEM ON HI RE. THE ASSESSEE-COMPANY HAD ONLY LEASED OUT THE VEHICLES A ND IF AT ALL, IT IS THE LESSEES WHO HAD USED THEM IN THEIR BUSINESS OF RUNNING THEM ON HIRE. BUT FOR THAT MATTER ALSO, EVIDENCE WAS NOT F URNISHED. THE FACT BEING SO, WE DO NOT FIND MUCH FORCE IN THE ARGUMENT OF THE ASSESSEE AND, THEREFORE, THIS ISSUE IS DECIDED AGAINST THE A SSESSEE. 5. THE THIRD ISSUE RAISED BY THE ASSESSEE IS THAT T HE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN ST ATING THAT NO ARGUMENTS WERE ADVANCED IN RESPECT OF EXPENDITURE C LAIMED UNDER SEC.35D IN THE SUM OF ` 20,615/-. THIS AMOUNT IN FACT RELATED TO THE CLAIM MADE BY THE ASSESSEE AGAINST AMORTIZATION OF PRELIMINARY EXPENSES. THE ASSESSING OFFICER HAS IN FACT LIMITE D THE CLAIM TO THE SALE QUANTUM ALLOWED AS A DEDUCTION IN THE EARLIER ASSESSMENT YEAR 1995-96. THIS EXCESS AMOUNT OVER AND ABOVE THAT FI GURE ALONE, WAS ITA 2208/07 :- 4 -: NOT ALLOWED. WE DO NOT FIND MUCH FORCE IN THE ARG UMENT OF THE ASSESSEE AND THIS GROUND IS REJECTED. 6. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT TH E ASSESSING AUTHORITY SHOULD HAVE ACCEPTED THE BONA FIDE CHANGE IN THE METHOD OF ACCOUNTING BROUGHT IN BY THE ASSESSEE SINCE THE IMPUGNED ASSESSMENT YEAR AND AS SUCH, HE SHOULD HAVE ALLOWED AS A DEDUCTION THE AMOUNT OF INTEREST OF ` 89,72,461/- AS A PERIOD COST. 7. THIS ISSUE HAS BEEN CONSIDERED BY THE COMMISSION ER OF INCOME-TAX(APPEALS) IN A DETAILED MANNER IN PAGES 8 TO 35 OF HER ORDER. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS EXAMINED THE WORKING RESULTS OF THE ASSESSEE-COMPANY FOR EARLIER ASSESSMENT YEARS IN THE BACKDROP OF THE OPERATIONAL ACTIVITIES CARRIED OUT BY THE ASSESSEE WITH REFERENCE TO THE DIFFERENT PROJECTS. AFTER A THOROUGH ANALYSIS OF THE ACTIVITIES, REPORTING STANDARDS AND ACCOUNTING POLICIES FOLLOWED BY THE ASSESSEE AND ALSO THE METHOD OF REV ENUE RECOGNITION STATED TO HAVE BEEN FOLLOWED BY THE ASS ESSEE, THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS COME TO A C LEAR-CUT FINDING THAT THE METHOD OF ACCOUNTING WHICH WAS HIT HERTO FOLLOWED BY THE ASSESSEE-COMPANY DID NOT REFLECT THE TRUE PICTU RE OF THE OPERATIONAL ACTIVITIES AND FUNDING AND RESULTS OF THE ASSESEEE AS A ITA 2208/07 :- 5 -: CONSEQUENTIAL. SHE HAS FURTHER CONCLUDED THAT EVEN THE SO CALLED CHANGE IN THE METHOD OF ACCOUNTING BROUGHT IN BY TH E ASSESSEE, IS NOT SUCCESSFULLY CONVINCING AS TO HOW THE CHANGE EN ABLED THE COMPANY TO GIVE A TRUE AND REAL PICTURE OF ITS BUSI NESS AFFAIRS. SHE OBSERVED THAT WHATEVER METHOD THAT HAD BEEN FOLLOWE D BY THE ASSESSEE FOR THE EARLIER ACCOUNTING PERIODS AS WELL AS FOR THE IMPUGNED ACCOUNTING PERIOD, RECOGNITION OF INCOME V IS--VIS BOOKING OF EXPENDITURE ARE NOT IN CONFORMITY WITH THE RECOG NIZED PRINCIPLES OF ACCOUNTING AND, THEREFORE, CANNOT BE UPHELD IN LAW. WITH REGARD TO THE CONTENTION OF THE ASSESSEE THAT IT HAD OFFERED INCOME FOR THE EARLIER ASSESSMENT YEARS, MORE PARTICULARLY WITH RE FERENCE TO PARK DUGAR PROJECT, THE COMMISSIONER OF INCOME-TAX(APPEA LS) FOUND THAT WHAT WAS OFFERED AS INCOME WAS ONLY PROJECT PROMOTI ON FEES AND NOTHING ELSE. RELYING ON THE DECISION OF THE BOMBA Y TRIBUNAL IN THE CASE OF JCIT V. K. RAHEJA (P) LTD. THE COMMISSIONER OF INCOME- TAX(APPEALS) HELD THAT INTEREST CLAIM AS A PERIOD C OST MAY BE ALLOWED IN A CASE WHERE THE ASSESSEE IS FOLLOWING D EFINITE AND RECOGNIZED METHOD OF ACCOUNTING COMPLETED CONTRACT FOR RECOGNIZING ITS INCOME OR LOSS. BUT SUCH A VIEW CA NNOT BE TAKEN IN THE CASE OF THE ASSESSEE, AS THE ASSESSEE IS DOING REAL ESTATE ITA 2208/07 :- 6 -: BUSINESS AS WELL AS BUSINESS OF DEVELOPMENT AND CON STRUCTION OF PROPERTIES AND IN RESPECT OF LATTER ONE, THE ASSESS EE WAS FOLLOWING COMPLETED CONTRACT METHOD WHEREIN THE ASSESSEE HAD ALREADY DEBITED THE ENTIRE INTEREST EXPENDITURE AS DEDUCTIO N FROM ITS COST. 8. IT IS AFTER EXAMINING ALL THESE ASPECTS OF THE C LAIM THAT THE COMMISSIONER OF INCOME-TAX(APPEALS)HAS COME TO THE CONCLUSION THAT THE METHOD OF ACCOUNTING ADOPTED BY THE ASSESS EE FOR THE IMPUGNED ASSESSMENT YEAR DOES NOT PORTRAIT ANY DE F ACTO CHANGE IN THE METHOD OF ACCOUNTING OR RECOGNITION OF INCOME A ND IT DOES NOT GIVE ANY CLEAR PICTURE OF ITS CONSTRUCTION ACTIVITI ES. IT IS ON THE BASIS OF THE ABOVE FINDING THAT THE COMMISSIONER OF INCOM E-TAX(APPEALS) HAS CONFIRMED THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING AUTHORITY. 9. ON GOING THROUGH THE DETAILED DISCUSSION MADE BY THE COMMISSIONER OF INCOME-TAX(APPEALS), WE ARE ALSO IN CLINED TO AGREE WITH HER. THE METHOD EMPLOYED BY THE ASSESSEE WAS IN CONSISTENT WITH PAST ASSESSMENT YEAR-WISE OR PROJECT-WISE. WH EN SUCH A SET OF PATTERN IS NOT VISIBLE FOR THE EARLIER ASSESSMENT Y EARS, IT IS NOT POSSIBLE TO HOLD THAT THERE WAS SUCH FOLLOWING OF A CCEPTED METHOD OF ACCOUNTING BY THE ASSESSEE. SUCH A METHOD IS NOT A T ALL AVAILABLE. ITA 2208/07 :- 7 -: THERE IS NO FORCE IN THE ARGUMENT OF THE ASSESSEE R EGARDING CHANGE IN ITS METHOD OF ACCOUNTING SINCE IMPUGNED ASSESSME NT YEAR, AND, THEREFORE, THE INTEREST EXPENDITURE SHOULD BE ALLOW ED AS A PERIOD COST. IN THE ASSESSEES CASE IN RESPECT OF CERTAIN PROJECTS IT IS FOLLOWING PROJECT COMPLETION METHOD AND WHILE DOING SO, HAS CLAIMED THE ENTIRE FINANCE AND INTEREST COST OF THE PROJECT AS A WHOLE AS DEDUCTION IN COMPUTING ITS PROFITS. IN THESE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT ALL OF A SUDDEN THE CLAIM MADE BY THE ASSESSEE TO TREAT THE INTEREST EXPENDITURE AS A PER IOD COST IS NOT LEGALLY SUSTAINABLE. THEREFORE, WE CONFIRM THE ORD ERS OF THE LOWER AUTHORITIES ON THIS POINT AND REJECT THE CONTENTION S OF THE ASSESSEE. 10. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT T HE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ERRED IN CO NFIRMING THE ADDITION OF ` 93,07,991/- MADE BY THE ASSESSING OFFICER IN THE P ARK DUGAR PROJECT. IN FACT, THE ASSESSEE HAD NOT CLAIM ED SUCH DEDUCTION IN ITS PROVISION FOR THE ASSESSMENT YEAR 1999-2000. THEREFORE, IT IS THE CASE OF THE ASSESSEE THAT THER E IS DUPLICATION OF DISALLOWANCE AND THE SAME NEEDS TO BE RECTIFIED. 11. THE COMMISSIONER OF INCOME-TAX(APPEALS) HAS ALR EADY EXAMINED THIS ISSUE IN DETAIL AND HAS GIVEN A DIREC TION TO THE ITA 2208/07 :- 8 -: ASSESSING OFFICER IN PARAGRAPH 8.3.9 BY HER THAT TH E AMOUNT OF ` 93,07,991/- REQUIRES TO BE DELETED. BUT THE RIDER PUT IN BY THE COMMISSIONER OF INCOME-TAX(APPEALS) IS THAT THE AS SESSING OFFICER SHOULD EXAMINE WHETHER ANY INTEREST ON BORROWED FUN DS ATTRIBUTABLE TO PARK DUGAR PROJECT, HAS TO BE DISALLOWED. BUT WE FIND THAT THIS A DIRECTION WITHOUT ANY POINT. THE QUESTION OF ADJUS TING INTEREST AS PERIOD COST HAS ALREADY BEEN DECIDED AGAINST THE AS SESSEE. IN SUCH CIRCUMSTANCES, THE ASSESSEE WOULD BE INVARIABLY LOA DING UP THE WORK-IN-PROGRESS INTEREST COST AND SUCH INTEREST CO ST WOULD HAVE BEEN ABSORBED BY OTHER PROJECTS. WHEN THE COMMISSI ONER OF INCOME-TAX(APPEALS) HAS SEEN THAT THE ADDITION OF ` 93,07,991/- IS A DUPLICATION, THEN SHE SHOULD HAVE DELETED THE SAME, AS SUCH. THEREFORE, WE ARE MAKING THE DIRECTION GIVEN TO THE COMMISSIONER OF INCOME-T(APPEALS) MORE OPEN AND DIRECT THE ASSESSIN G OFFICER TO DELETE ADDITION OF ` 93,07,991/-. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. 12. THE LAST ISSUE IS THAT THE CIT(A) OUGHT TO HAVE ALLOWED `36,357/- AS A DEDUCTION WHICH WAS MADE TOWARDS INTEREST TAX LIABILITY. THIS MAY BE LOOKED INTO BY THE ASSESSIN G OFFICER AND IF SO FOUND DEDUCTIBLE AS PER RULES, ALLOW IT AS A DEDUCT ION. ITA 2208/07 :- 9 -: 13. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 22 ND OF MARCH, 2012 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 22 ND MARCH, 2012. MPO* COPY TO: (1) PETITIONE R (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F.