M/s. N.G. Patel & Associates, Ahmedabad V. The Dy.CIT.,(OSD), Circle-9, Ahmedabad

ITA 223/AHD/2010

• Counselvise Citation: 22320514 RSA 2010
• Duration Of Justice: 3 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 22-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C MATHEWS
• Assessee Lawyers: M K PATEL
• Keywords: Unexplained cash credit

Judgement Text

, , , , D, IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH . .. . . . . . , , , , ! ! ! ! ' #$ ' #$ ' #$ ' #$ , , , , % % % % BEFORE S/SHRI N.S. SAINI, ACCOUNTANT MEMBER AND KUL BHARAT, JUDICIAL MEMBER) ITA NO.223/AHD/2010 [ASSTT.YEAR : 2006-2007] N.G. PATEL & ASSOCIATES 10 TH FLOOR, ASTRN TECH PARK SG HIGHWAY, OPP: FUN REPUBLIC SATELLITE, AHMEDABAD. PAN : AACFN 5395 B /VS. DCIT (OSD), CIR.9 AHMEDABAD. ITA NO.282/AHD/2010 [ASSTT.YEAR : 2006-2007] DCIT (OSD), CIR.9 AHMEDABAD. /VS. N.G. PATEL & ASSOCIATES 10 TH FLOOR, ASTRN TECH PARK SG HIGHWAY, OPP: FUN REPUBLIC SATELLITE, AHMEDABAD. ( (( ('( '( '( '( / APPELLANT) ( (( ()*'( )*'( )*'( )*'( / RESPONDENT) +$ , - / ASSESSEE BY : SHRI M.K. PATEL / , - / REVENUE BY : SHRI K.C. MATHEWS, SR.DR '0 , $1/ DATE OF HEARING : 19 TH NOVEMBER, 2013 234 , $1/ DATE OF PRONOUNCEMENT : 22-11-2013 5 / O R D E R ITA NO.223 AND 282/AHD/2010 -2- PER N.S. SAINI, ACCOUNTANT MEMBER : THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAIN ST THE ORDER OF THE LEARNED CIT(A)-XV, AHMEDABAD DATED 20.11.2009. 2. THE SOLE ISSUE INVOLVED IN THE APPEAL OF THE ASS ESSEE IS THAT THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THE ADDIT ION OF ` 35,35,789/- MADE BY DCIT(OSD), AHMEDABAD BY TREATIN G THE ADVANCE PAYMENT RECEIVED BY THE ASSESSEE AS CONTRAC T RECEIPT INCOME IN ASSTT.YEAR 2006-2007. 3. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT THE ASSESSEE DID NOT INCLUDE THE RECEIPT OF ` 73.00 LAKHS RECEIVED FROM SISTER CONCERN, M/S.N.G. DEVELOPERS, THOUGH IT HAD CLAIMED TDS CREDIT ON THESE RECEIPTS IN THE RETURN FILED. THE CONTENTION OF THE ASSESSEE BEFORE THE AO THAT THIS WAS JUST AN ADVANCE FOR CONSTRUCTION OF ONE RESIDENTIAL (ASHWAVILLA BUNGALO W) SCHEME DID NOT FIND FAVOUR, BECAUSE, WORK HAD STARTED ON T HIS PROJECT AND EXPENDITURE OF ` 37,64,311 HAD ALSO BEEN INCURRED BY THE ASSESSEE ON THE CONSTRUCTION WORK OF THE SCHEME. ACCORDING TO THE AO, THE RECEIPTS SHOULD HAVE BEEN CREDITED IN THE PROFI T & LOSS ACCOUNT AND THE EXPENDITURE DEBITED, BUT THE ASSESS EE DID NOT DO SO AND TOOK THE EXPENDITURE IN THE BALANCE SHEET ON THE ASSET ASIDE UNDER THE TITLE RECEIVABLE AGAINST WORK (ASHWAVILL A CONSTRUCTION ACCOUNT) 4. ON APPEAL BEFORE THE LEARNED CIT(A) ALSO THE ASS ESSEE VEHEMENTLY ARGUED THAT ` 73.00 LAKHS WAS JUST AN ADVANCE AND NO ITA NO.223 AND 282/AHD/2010 -3- INCOME ACCRUED TO THE ASSESSEE, BECAUSE PROJECT HAS NOT BEEN COMPLETED, RATHER AFTER TWO YEARS, THE BALANCE AMOU NT AFTER DEDUCTING EXPENSES COST WAS RETURNED BACK BY THE AS SESSEE TO THE SISTER CONCERN, N.G. DEVELOPERS. 5. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE CONFIRMED THE ACTION OF THE AO BY OBSE RVING AS UNDER: 7. AFTER GOING THROUGH RIVAL SUBMISSIONS IT IS SEE N THAT THE APPELLANT RECEIVED RS.74,48,920 IN AY 2006-07 O UT OF WHICH IF TDS OF RS.1,48,920 (1,17,300+12,240+19,380 ) IS REDUCED THE AMOUNT COMES TO RS.73,00,000 IN THE NEX T YEAR I.E. 2007-08 GROSS RECEIPTS OF RS.47,79,907 WERE RE CEIVED OUT OF WHICH TDS OF RS.1,04,907 (RS.41.514 + 17,952 + 23.001 + 8,976 + 13,464) WAS DEDUCTED. THUS OUT OF GROSS RECEIPTS OF RS.1,22,28,827 (RS 74,48,920 + 47,79,90 7 ) WHICH INCLUDES TDS AMOUNT) CONSTRUCTION EXPENSES OF RS.37,64,311 FROM ASHWAVILLA) BUNGLOWS WAS REDUCED BY THE APPELLANT AND THE AMOUNT OF RS.84,64,516 (RS.1,22,28,827 RS 37,64,311) WAS RETURNED BACK T O N.G. DEVELOPERS IN AY 2008-09. JUST BECAUSE SOME AM OUNT WAS RETURNED BACK TO THE SISTER CONCERN DOES NOT ME AN THAT THE AMOUNT OF RS.74,48,920 ON WHICH TDS OF RS.1.49, 920 HAD BEEN CLAIMED LEAVING BALANCE OF RS.73,00,000 WO ULD NOT BE CREDITED TO THE P&L ACCOUNT SPECIALLY WHEN CONSTRUCTION EXPENSES ALSO OF RS.37,64,311 HAD BEEN INCURRED. THE FINDING GIVEN BY THE AO THUS IN PARA 3.4 OF THE ASSESSMENT ORDER IS UPHELD WHICH IS TAXING THE EXCESS OF RECEIPT OVER EXPENSES IN THE YEAR UNDER CONSIDERATI ON WHICH COMES TO RS.35,35,689( RS.73,00,000 MINUS 37,64,311) ITA NO.223 AND 282/AHD/2010 -4- 6. THE LEARNED AR OF THE ASSESSEE BEFORE US REITERA TED THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A) AND THE AO. HE REFERRED TO PAGES 26 AND 27 OF THE PAPER BOOK, WHER EIN THE BALANCE SHEET OF THE ASSESSEE IS FILED, FROM WHERE, HE POINTED OUT THAT THE ASSESSEE HAS SHOWN ` 37,64,311/- AS RECEIVABLE AGAINST ASHWAVILLA CONSTRUCTION ACCOUNT ON THE ASSET SIDE O F BALANCE SHEET AND ` 73.00 LAKHS WAS SHOWN ON THE LIABILITY SIDE UNDER THE HEAD UNSECURED LOANS. HE FURTHER REFERRED TO PAG ES 28 TO 31 OF THE PAPER BOOK, WHEREIN THE LEDGER ACCOUNT OF N.G. DEVELOPERS HAS BEEN FILED IN THE BOOKS OF THE ASSESSEE, FROM W HERE, IT HAS BEEN POINTED OUT THAT AS ON 31.3.2006, THE AMOUNT S HOWN AS CREDIT BALANCE IN THE NAME OF N.G. DEVELOPERS WAS ` 74,48,920/- AND THAT DEBIT OF TDS, THE NET AMOUNT OF CREDIT WAS ` 73.00 LAKHS. HE FURTHER POINTED THAT AS ON 31.3.2007, THE CREDIT BALANCE WAS ` 84,64,516/-, WHICH WAS REPAID ON 14.11.2007. IT WA S, THEREFORE, THE SUBMISSIONS OF THE ASSESSEE THAT LATER ON IN TH E FINANCIAL YEAR 2007-2008, THE AMOUNT WAS RETURN AFTER ADJUSTING TH E EXPENDITURE INCURRED IN THE CONSTRUCTION AND THE ACCOUNT WAS SQ UARED UP. THUS, IT WAS THE SUBMISSION OF THE ASSESSEE THAT TH E AMOUNT RETURNED BACK WAS NOT THE INCOME ACCRUED TO THE ASS ESSEE. IT WAS ALSO SUBMITTED THAT NO INCOME ALSO ACCRUED TO THE A SSESSEE DURING THE UNDER CONSIDERATION, AS THE ASSESSEE WAS FOLLOW ING THE PROJECT COMPLETION METHOD, AND HAS SHOWN THE EXPENDITURE IN CURRED IN THE BALANCE SHEET ON THE ASSET ASIDE, AND THE AMOUN T OF RECEIPT AS AN ADVANCE ON LIABILITY SIDE OF THE BALANCE SHEET. ITA NO.223 AND 282/AHD/2010 -5- 7. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION FOR TDS IN THE RETUR N OF INCOME FILED, AND THEREFORE, THE AMOUNT OF ` 73.00 LAKHS, WAS RIGHTLY TREATED AS INCOME OF THE ASSESSEE BY THE AO. IN RE PLY TO THE SUBMISSION OF THE ASSESSEE, THE LEARNED DR SUBMITTE D THAT MERELY BECAUSE TDS WAS REQUIRED TO BE DEDUCTED ON ADVANCE PAYMENT MADE TO THE ASSESSEE THAT BY ITSELF WOULD NOT CONST ITUTE THE INCOME OF THE ASSESSEE. THE INCOME OF THE ASSESSEE HAS TO BE COMPUTED ON THE BASIS OF METHOD OF ACCOUNTING FOLLO WED BY THE ASSESSEE. 8. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDER S OF THE LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSEE RECEIVED ` 74,48,920/- FROM M/S.N.G. DEVELOPERS INCLUDING ITDS OF ` 1,48,920 AGAINST CONTRACT OF CONSTRUCTION OF BUNGALOW. THE ASSESSEE INCURRED EX PENDITURE OF ` 37,64,311/- IN RESPECT OF THAT CONTRACT WORK. THE ASSESSEE HAS SHOWN ` 37,64,311/- AS RECEIVABLE AGAINST WORK OF ASHWAVILL A CONSTRUCTION ACCOUNT IN ITS BALANCE SHEET AS ON 31. 3.2006 AND SHOWN ` 74,48,920/- AS LIABILITY. THE ASSESSEE CONTENDED T HAT IT FOLLOWS PROJECT COMPLETION METHOD FOR RECOGNIZING I TS INCOME. THE AO OBSERVED THAT THE ASSESSEE FOLLOWS MERCANTIL E SYSTEM OF ACCOUNTING. ACCORDING TO THE AO, THE ASSESSEE RECE IVED ` 74,48,920/- AND INCURRED EXPENDITURE OF ` 37,64,311/-, AND THEREFORE, HE TREATED THE DIFFERENCE OF ` 35,35,689/- AS INCOME OF THE ASSESSEE OF THE YEAR UNDER CONSIDERATION. THE ASSESSEE ITA NO.223 AND 282/AHD/2010 -6- EXPLAINED BEFORE THE AO THAT FURTHER ` 47,79,907/- WHICH INCLUDED TDS RECEIVED AGAINST THIS CONSTRUCTION WORK IN THE SUBSEQUENT YEAR, BUT AS THE ASSESSEE COULD NOT COMPLETE THE WO RK AND THE PROJECT WAS ABANDONED, SO, THE AMOUNT OF ` 84,64,516/-, WHICH WAS RECEIVED BY THE ASSESSEE IN EXCESS OF THE EXPEN DITURE INCURRED OF ` 37,64,311/- WAS RETURNED TO THE SAID PARTY. THUS, THE ASSESSEE ACTUALLY EARNED NO INCOME FROM THIS CONTRA CT WORK. HOWEVER, THE AO HAS NOT ACCEPTED THE SAME ON THE GR OUND THAT THE CONTRACT WAS WITH AN ASSOCIATED CONCERN OF THE ASSESSEE. 9. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE ACTI ON OF THE AO. 10. MOREOVER, WE FIND THAT THE AO ACCEPTED THE FACT THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING. HOWEVER, THE AO HAS TREATED THE ENTIRE AMOUNT OF RE CEIPT OF ` 74,48,920/- AS INCOME OF THE ASSESSEE OF THE YEAR U NDER CONSIDERATION WITHOUT ASCERTAINING WHAT WAS THE AMO UNT WHICH ACTUALLY BECAME LEGALLY DUE TO THE ASSESSEE ON ACCO UNT OF ITS EXECUTION OF WORK DURING THE YEAR UNDER CONSIDERATI ON. 11. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSE SSEE RETURNED ` 84,64,516/- TO THE CONTRACTEE AND THE PROJECT WAS A BANDONED. THUS, THIS UNDISPUTED FACT SHOWS THAT THE ASSESSEE ACTUALLY RECEIVED ` 37,64,311/- ONLY AND ALSO INCURRED EXPENDITURE OF E QUAL AMOUNT AND EARNED NO REAL INCOME FROM THIS PROJECT, WHICH WAS ABANDONED. IN THE ABOVE CIRCUMSTANCES, IN OUR CONS IDERED VIEW, ITA NO.223 AND 282/AHD/2010 -7- AS NO REAL INCOME WAS EARNED BY THE ASSESSEE IN RES PECT OF THE PROJECT IN QUESTION, NO INCOME IN RESPECT OF THAT P ROJECT CAN BE ASSESSED IN THE HANDS OF THE ASSESSEE. THEREFORE, THE ACTION OF THE AO AS WELL AS THE ACTION OF THE CIT(A) ARE UNSUSTAI NABLE. WE, THEREFORE, DELETE THE ADDITION OF ` 35,35,789/-. 12. BEFORE PARTING WITH THE ORDER, WE WOULD LIKE TO MENTION THAT THE AO HAS ALLOWED CREDIT FOR TDS ` 1,48,920 TO THE ASSESSEE WHILE TREATING THE SUM OF ` 35,35,689/- AS INCOME OF THE ASSESSEE OF THE YEAR UNDER CONSIDERATION. THE AO IS DIRECTE D TO WITHDRAW THE CREDIT OF THIS TDS AMOUNT WHILE GIVING EFFECT T O THIS ORDER, AS PER LAW. THIS GROUND OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. 14. IN THE APPEAL OF THE REVENUE, THE SOLE ISSUE IN VOLVED IS THAT THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN DEL ETING THE ADDITION OF ` 26,77,863/- MADE BY THE AO FOR UNEXPLAINED CREDIT U/S.68. 15. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVE D THAT THE ASSESSEE HAS SHOWN ` 26,77,863/- AS RETENTION MONEY UNDER THE HEAD SUNDRY CREDITORS, BUT DID NOT FURNISH CONFIR MATIONS IN SUPPORT. THE AO DID NOT FIND THE EXPLANATION GIVEN BY THE ASSESSEE THAT RETENTION MONEY CONSISTED OF SMALL AM OUNTS OF MONEY PAYABLE TO CONTRACTORS, SUPPLIERS, WORKERS ET C. BY THE ASSESSEE. ACCORDING TO THE AO, SMALL TIME CARPENTE RS, PLUMBERS, ITA NO.223 AND 282/AHD/2010 -8- WORKERS WOULD NOT KEEP AMOUNTS OUTSTANDING WITH THE ASSESSEE, AND HE PROCEEDED WITH THE ADDITION. 16. ON APPEAL BEFORE THE LEARNED CIT(A), THE ASSESS EE SUBMITTED THAT THE AO MADE THE ADDITION WITHOUT GIV ING ADEQUATE OPPORTUNITY, AND THAT CONFIRMATIONS WERE NEVER ASKE D FOR. VIDE ORDER SHEET DATED 14.11.2008, THE AO ASKED FOR COPI ES OF LEDGER ACCOUNTS OF RETENTION MONEY ACCOUNTS, AND THEIR ADD RESSES, AND IT WAS ARGUED THAT BOTH THE REQUIREMENTS WERE MET WITH . FURTHER, IT WAS POINTED OUT TO THE LEARNED CIT(A) THAT THE LIST OF NAMES AND ADDRESSES OF THE RETENTION MONEY ACCOUNT HOLDERS GI VEN TO THE AO ON WHICH THE AO MADE NO INQUIRIES/VERIFICATIONS BUT PROCEEDED WITH THE ADDITIONS. IT WAS FURTHER ARGUED THAT OUT OF RETENTION OF MONEY ` 26,77,863/-, OPENING BALANCE WAS OF ` 23,95,826/-, AND THEREFORE, THE ADDITION OF FULL ` 26,77,863/- WAS NOT JUSTIFIED. 17. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING AS U NDER: AFTER GOING THROUGH RIVAL SUBMISSIONS I FIND THAT THE CONTENTION OF THE APPELLANT THAT OUT OF RETENTION M ONEY APPEARING IN THE BALANCE SHEET RS.23,95,826 WAS OPE NING BALANCE AND HENCE IT COULD NOT HAVE BEEN ,ADDED IN THE PRESENT AY. LEDGER ACCOUNT COPIES GIVEN TO THE AO O F THE RETENTION MONEY ACCOUNTS WERE ALSO SUBMITTED TO THI S OFFICE AND THESE ACCOUNTS SHOW THAT 90% OF THE PAYMENTS OU T OF THE BILLS RAISED HAD BEEN MADE BY THE APPELLANT AND A SMALL PERCENTAGE WAS RETAINED - WHICH WAS THE AMOUNT SHOW N AS RETENTION MONEY. IT WAS ALSO INFORMED THAT IN SUBSE QUENT YEARS PAYMENTS HAD BEEN MADE TO VARIOUS PARTIES. KE EPING ITA NO.223 AND 282/AHD/2010 -9- IN VIEW THE SUBMISSIONS OF THE APPELLANT AND THE CO NTEXT OF THE CASE IN MY VIEW THE ADDITION BY THE AO IS NOT J USTIFIED AND HE IS DIRECT TO DELETE THE SAME. 18. THE LEARNED DR WHOLLY JUSTIFIED THE ACTION OF T HE AO, WHEREAS, THE LEARNED AR OF THE ASSESSEE SUPPORTED T HE ORDER OF THE LEARNED CIT(A). HE ALSO REFERRED TO PAGES NO.1 24 TO 126 OF THE PAPER BOOK, AND SUBMITTED THAT IT CONTAINED STA TEMENT SHOWING NAMES, ADDRESSES AND PAN OF THE RETENTION M ONEY ACCOUNT HOLDERS, WHICH WAS FILED BEFORE THE AO AND THE AO WITHOUT ANY FURTHER VERIFICATION MADE ADDITION OF T HE AMOUNT TO THE INCOME OF THE ASSESSEE. HE ALSO SUBMITTED THAT COPIES OF LEDGER ACCOUNT OF RETENTION MONEY AMOUNT WAS PLACED AT PAGES 50 AND 51 OF THE PAPER BOOK. FURTHER SUBMITTED THAT I N THE SUBSEQUENT YEARS THESE AMOUNTS HAVE BEEN PAID BY TH E ASSESSEE, AFTER SATISFACTORY COMPLETION OF THE WORK BY THE PE RSONS FROM WHOM RETENTION MONEY WAS RETAINED BY THE ASSESSEE. HENCE, IT WAS THE SUBMISSIONS THAT THE ADDITION WAS RIGHTLY D ELETED BY THE LEARNED CIT(A). 19. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF THE LOWER AUTHORITIES AND MATERIAL AVAILA BLE ON RECORD. WE FIND THAT THE LEARNED DR COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE FINDING OF THE LEARNED CIT(A). WE FIND THAT THE ASSESSEE HAS FILED AT PAGE NOS.124 TO 126 OF THE PAPER BOOK LIST OF PARTIES TO WHOM RETENTION MONEY WAS DUE AND THE SAID LIST C ONTAINED NAMES AND ADDRESSES OF ALL THE PARTIES. THE ASSESS EE CONTENDED ITA NO.223 AND 282/AHD/2010 -10- THAT THIS LIST WAS FILED BEFORE THE AO, AND THE AO WAS NOT JUSTIFIED IN OBSERVING THAT ADDRESSES OF ALL THE PA RTIES WERE NOT FURNISHED. THE LEARNED DR COULD NOT CONTROVERT THE ABOVE CONTENTIONS OF THE ASSESSEE. THUS, WE FIND THAT TH E AO MADE THE ADDITION WITHOUT VERIFICATION, AND WITHOUT BRINGING ON RECORD ANY MATERIAL TO SHOW THAT RETENTION MONEY WAS NOT ACTUA LLY PAYABLE BY THE ASSESSEE. WE, THEREFORE, DO NOT FIND ANY GO OD REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A), THU S, THIS GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 20. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. 21. IN COMBINED RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE. SD/- SD/- ( ' #$ ' #$ ' #$ ' #$ /KUL BHARAT /JUDICIAL MEMBER . .. . . . . . /N.S. SAINI /ACCOUNTANT MEMBER C OPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD