ADDL CIT 22(2), NAVI MUMBAI V. CEHMBUR GULMARG CHS LTD, MUMBAI

ITA 2292/MUM/2010

• Counselvise Citation: 229219914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 04-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Assessee Lawyers: S C TIWARI
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI, J. SUDHAKAR REDDY, ACCOUNTANT MEMBER A ND SMT. ASHA VIJAYRAGHAVAN, JUDICIAL MEMBER ITA NO. 2292/MUM./2010 (ASSESSMENT YEAR : 2006-07 ) DATE OF HEARING: 4.5.2011 DY. COMMISSIONER OF INCOME TAX CIRCLE-22(2), 4 TH FLOOR TOWER-6 VASHI RAILWAY STATION BUILDING VASHI, NAVI MUMBAI 400 703 .. APPELLANT V/S M/S. CHEMBUR GULMARG CHS LTD. RAMAKRISHNA CHEMBURKAR MARG OPP. TELEPHONE EXCHANGE CHEMBUR NAKA, MUMBAI 400 071 .... RESPONDENT REVENUE BY : MR. S.S. RANA ASSESSEE BY : MR. S.C. TIWARI O R D E R PER J. SUDHAKAR REDDY, A.M. THIS APPEAL FILED BY THE REVENUE, IS DIRECTED AGAIN ST THE IMPUGNED ORDER DATED 18 TH JANUARY 2010, PASSED BY THE COMMISSIONER (APPEALS) -XXX, MUMBAI, FOR ASSESSMENT YEAR 2006-07. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE IS A CO-OPERATIVE HOUSING SOCIETY AND IT HAD FILED RETURN OF INCOME ON 27 TH OCTOBER 2006, DECLARING TOTAL INCOME OF ` 64,66,064. DURING THE YEAR, THE ASSESSEE DECLARED PROFIT FROM SALE OF FLATS ON PERCENTAGE COMPLETION METHOD OF ACCOUNTING. THE ASSESSING OFFICER MADE A DISALLOWANCE UNDER SECTION 40A(IA) OF THE INCOME M/S. CHEMBUR GULMARG CHS LTD. ITA NO.2292 /MUM./2010 2 TAX ACT, 1961 (FOR SHORT THE ACT ) AND ASSESSED THE INCOME AT ` 1,15,38,635. 3. THE ASSESSEE, BEING AGGRIEVED, CARRIED THE MATTER B EFORE THE FIRST APPELLATE AUTHORITY, WHEREIN THE COMMISSIONER (APPE ALS) DELETED THE DISALLOWANCE. AGGRIEVED, THE REVENUE IS IN APPEAL B EFORE THE TRIBUNAL ON THE RAISING FOLLOWING GROUNDS OF APPEAL:- 1 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION M ADE BY EH ASSESSING OFFICER OF ` 50,72,571 UNDER SECTION 40(A)(IA) OF THE ACT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD MADE AGREEMENT WITH THE CONTRACTOR FOR CONSTRUCTION OF FLATS, RIGH TLY SO THE ASSESSEE IS A BUILDER AND UNDER THE PROVISIONS OF SECTION 194C, I T IS THE ASSESSEE WHO IS RESPONSIBLE FOR ANY DEFAULT IN THIS SECTION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT AS P ER THE PROVISIONS OF SECTION 194C, THE AMOUNT PAYABLE BY THE PURCHASER / ALLOTTEE TO THE CONTRACTOR HAS NO RELEVANCE, AS THE PURCHASER / ALL OTTEE IS NOT A PARTY TO CONTRACT UNDER SECTION 194C OF THE ACT. 4. WE HAVE HEARD THE LEARNED DEPARTMENTAL REPRESENTATI VE, MR. S.S. RANA, AS WELL AS LEARNED COUNSEL, MR. S.C. TIWARI, APPEARING ON BEHALF OF THE ASSESSEE. ON A CAREFUL CONSIDERATION OF THE FACTS A ND CIRCUMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORD AS WELL AS THE ORDERS OF THE AUTHORITIES BELOW, WE HOLD AS FOLLOW. (I) THE FACTS ARE BROUGHT OUT AT PAGE-3 / PARA-4, OF TH E COMMISSIONER (APPEALS)S ORDER, WHICH IS EXTRACTED FOR READY REFERENCE:- FACTS - THE APPELLANT SOCIETY IS A VERY OLD SOCIETY IN CHEMBUR, MUMBAI. ON ACCOUNT OF AMENDMENT IN THE LAW , THERE WAS AN INCREASE IN FSI AVAILABLE ON THE LAND OWNED BY THE SOCIETY. THE APPELLANT SOCIETY DECIDED TO CO NSTRUCT A NEW BUILDING KNOWN AS F BUILDING CONSISTING OF STILT AND 10 UPPER FLOORS BY CONSUMING THE BALANCE FSI OF 2572 SQUARE METERS. THE APPELLANT SOCIETY DECIDED TO CONSTRUCT 40 FLATS OF THE BUILT UP AREA (BUA) OF 30920 SQUARE FEET OVER A PER IOD OF M/S. CHEMBUR GULMARG CHS LTD. ITA NO.2292 /MUM./2010 3 YEARS. IT STARTED CONSTRUCTION OF THE BUILDING TOWA RDS LATER PART OF THE F.Y. 2003-04 RELEVANT TO A.Y. 2004-05 A ND FOLLOWED ONE OF THE WIDELY ACCEPTED METHODS I.E., P ROJECT COMPLETION METHOD OF ACCOUNTING FOR REAL ESTATE DEVELOPMENT ACTIVITIES. STIPULATIONS IN AGREEMENT WITH ALLOTTEES AND ACCOUN TING TREATMENT IN BOOKS. THE SOCIETY ENTERED INTO AGREEMENT WITH THE ALLOTTE ES OF THE FLATS WHEREBY THE ALLOTTEES AGREED TO PAY A PRI CE OF ` 2,324 PER SQUARE FEET AND OUT OF WHICH A PRICE OF ` 1,501 PER SQUARE FEET BEING CONSTRUCTION COST WAS AGREED TO BE PAID DIRECTLY BY THE ALLOTTEE TO THE CONTRACTORS OF THE BUILDING M/S. SANJANA BUILDERS AND THE BALANCE PRIC E OF ` 823 PER SQUARE FEET WAS PAID TO THE SOCIETY. THIS F ACTUAL POSITION IS SUPPORTED BY CLAUSE 2 AND CLAUSE 3 OF T HE AGREEMENT ENTERED INTO BY THE SCCIETY WITH THE ALLO TTEE (COPY OF THE AGREEMENT ENCLOSED). THUS, IT IS CRYST AL CLEAR THAT NO PART OF MONEY THAT IS PAID TO THE CONTRACTO RS TOWARDS CONSTRUCTION COST HAS EVER COME TO THE KITT Y OF THE APPELLANT SOCIETY AS THE SAME IS PAID BY THE AL LOTTEES DIRECTLY TO THE CONTRACTORS. IT IS THE OBLIGATION O F THE ALLOTTEES TO MAKE THE PAYMENTS TO THE CONTRACTORS D IRECTLY AND THE SOCIETY IS NOT AT ALL RESPONSIBLE FOR PAYME NT TO THE CONTRACTORS AND HENCE THE APPELLANT SOCIETY HAS NEVER SHOWN ANY AMOUNT AS PAYABLE TO THE CONTRACTORS IN I TS BOOKS AT ANY POINT OF TIME THROUGHOUT THE TENURE OF THE PROJECT. EVERY TIME THE SOCIETY HAS DEBITED THE ACC OUNT OF DEVELOPMENT COST OF BUILDING E AND CREDITED THE ACCOUNT OF ADVANCE FROM FLAT PURCHASERS (BLDG. F ) IN ITS BOOKS FOR WHATEVER AMOUNT THAT IS PAID BY THE ALLOTTEES TO THE CONTRACTORS. THUS AT NO POINT OF T IME THERE IS ANY CREDIT TO THE ACCOUNT OF CONTRACTORS IN THE BOOKS OF THE APPELLANT SOCIETY FOR THE RESPECTIVE YEARS WOUL D CONFIRM THIS POSITION (BALANCE SHEET FOR THE YEAR E NDED 31.03.04, 31.03.05 AND 31.03.06 ENCLOSED). (II) BEFORE US, THE LEARNED COUNSEL SUBMITS THAT THE ALL OTTEES HAVE MADE DIRECT PAYMENTS TO THE CONTRACTOR OF THE BUILDING AND, AS AND WHEN THEY MADE THE PAYMENTS, TAX WAS DE DUCTED AT SOURCE. IT IS HIS CASE THAT NO PROVISION ENTRY OR A CREDIT ENTRY IS PASSED IN THE BOOKS OF THE ASSESSEE SOCIETY. THIS F ACT IS NOT DENIED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE. THE ASSESSEE SOCIETY INCORPORATES IN ITS BOOKS OF ACCOU NT SUCH TRANSACTION ONLY WHEN PAYMENTS ARE MADE TO THE CONT RACTOR M/S. CHEMBUR GULMARG CHS LTD. ITA NO.2292 /MUM./2010 4 DIRECTLY BY THE ALLOTTEE. SECTION 194C, CONTEMPLATE S ONLY IN TWO SITUATIONS. SECTION 194C, READS AS FOLLOWS:- PAYMENTS TO CONTRACTORS AND SUB-CONTRACTORS 194C. (1) ANY PERSON RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT(HEREAFTER IN THIS SECTION REFERRED TO AS T HE CONTRACTOR) FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABO UR FOR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT B ETWEEN THE CONTRACTOR AND (A) THE CENTRAL GOVERNMENT OR ANY STATE GOVERNMENT ; OR (B) ANY LOCAL AUTHORITY; OR (C) ANY CORPORATION ESTABLISHED BY OR UNDER A CENT RAL, STATE OR PROVINCIAL ACT; OR (D) ANY COMPANY; [OR] [(E) ANY CO-OPERATIVE [SOCIETY; OR]] [(F) ANY AUTHORITY, CONSTITUTED IN INDIA BY OR UND ER ANY LAW, ENGAGED EITHER FOR THE PURPOSE OF DEALING WITH AND SATISFYING THE NEED FOR HOUSING ACCOMMODATION OR FOR THE PURPO SE OF PLANNING, DEVELOPMENT OR IMPROVEMENT OF CITIES, TOW NS AND VILLAGES, OR FOR BOTH; OR (G) ANY SOCIETY REGISTERED UNDER THE SOCIETIES REG ISTRATION ACT, 1860 (21 OF 1860) OR UNDER ANY LAW CORRESPONDI NG TO THAT ACT IN FORCE IN ANY PART OF INDIA; OR (H) ANY TRUST; OR (I) ANY UNIVERSITY ESTABLISHED OR INCORPORATED BY OR UNDER A CENTRAL, STATE OR PROVINCIAL ACT AND AN INSTITUTION DECLARED TO BE A UNIVERSITY UNDER SECTION 3 OF THE UNIVERSITY GRAN TS COMMISSION ACT, 1956 (3 OF 1956); [OR] [(J) ANY FIRM,] SHALL, AT THE TIME OF CREDIT OF SUCH SUM TO THE ACC OUNT OF THE CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CAS H OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVE R IS EARLIER, [DEDUCT AN AMOUNT EQUAL TO (I) ONE PER CENT IN CASE OF ADVERTISING, (II) IN ANY OTHER CASE TWO PER CENT, OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THERE IN.] (2) ANY PERSON (BEING A CONTRACTOR AND NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY) RESPONSIBLE FOR PAYING ANY SUM TO ANY RESIDENT (HEREAFTER IN THIS SECTION REFERRED TO AS THE SUB- CONTRACTOR) IN PURSUANCE OF A CONTRACT WITH THE SUB -CONTRACTOR FOR CARRYING OUT, OR FOR THE SUPPLY OF LABOUR FOR C ARRYING OUT, THE WHOLE OR ANY PART OF THE WORK UNDERTAKEN BY THE CON TRACTOR OR FOR SUPPLYING WHETHER WHOLLY OR PARTLY ANY LABOUR W HICH THE CONTRACTOR HAS UNDERTAKEN TO SUPPLY SHALL, AT THE T IME OF CREDIT OF SUCH SUM TO THE ACCOUNT OF THE SUB-CONTRACTOR OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT AN AMOUNT EQUAL TO ONE PER CENT OF SUCH SUM AS INCOME-TAX ON INCOME COMPRISED THEREIN: M/S. CHEMBUR GULMARG CHS LTD. ITA NO.2292 /MUM./2010 5 [PROVIDED THAT AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY, WHOSE TOTAL SALES, GROSS RECEIPTS OR TURNOVER FROM THE BU SINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LI MITS SPECIFIED UNDER CLAUSE (A) OR CLAUSE (B) OF SECTION 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANC IAL YEAR IN WHICH SUCH SUM IS CREDITED OR PAID TO THE ACCOUNT O F THE SUB- CONTRACTOR, SHALL BE LIABLE TO DEDUCT INCOME-TAX U NDER THIS SUB- SECTION.] [EXPLANATION I.FOR THE PURPOSES OF SUB-SECTION (2 ), THE EXPRESSION CONTRACTOR SHALL ALSO INCLUDE A CONTRA CTOR WHO IS CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR F OR CARRYING OUT ANY WORK) IN PURSUANCE OF A CONTRACT BETWEEN TH E CONTRACTOR AND THE GOVERNMENT OF A FOREIGN STATE OR A FOREIGN ENTERPRISE OR ANY ASSOCIATION OR BODY ESTABLISHED O UTSIDE INDIA.] [EXPLANATION II].FOR THE PURPOSES OF THIS SECTION , WHERE ANY SUM REFERRED TO IN SUB-SECTION (1) OR SUB-SECTION ( 2) IS CREDITED TO ANY ACCOUNT, WHETHER CALLED SUSPENSE ACCOUNT O R BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON L IABLE TO PAY SUCH INCOME, SUCH CREDITING SHALL BE DEEMED TO BE C REDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PRO VISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY.] [EXPLANATION III.FOR THE PURPOSES OF THIS SECTION , THE EXPRESSION WORK SHALL ALSO INCLUDE (A) ADVERTISING; (B) BROADCASTING AND TELECASTING INCLUDING PRODUCT ION OF PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING; (C) CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE O F TRANSPORT OTHER THAN BY RAILWAYS; (D) CATERING.] (3) NO DEDUCTION SHALL BE MADE UNDER SUB-SECTION (1 ) OR SUB- SECTION (2) FROM [( I ) THE AMOUNT OF ANY SUM CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID TO THE ACCOUNT OF, OR TO, THE CONT RACTOR OR SUB- CONTRACTOR, IF SUCH SUM DOES NOT EXCEED TWENTY THOU SAND RUPEES: PROVIDED THAT WHERE THE AGGREGATE OF THE AMOUNTS OF SUCH SUMS CREDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE FINANCIAL YEAR EXCEEDS FIFTY THOUSAND RU PEES, THE PERSON RESPONSIBLE FOR PAYING SUCH SUMS REFERRED TO IN SUB- SECTION (1) OR, AS THE CASE MAY BE, SUB-SECTION (2) SHALL BE LIABLE TO DEDUCT INCOME-TAX [UNDER THIS SECTION:] [PROVIDED FURTHER THAT NO DEDUCTION SHALL BE MADE UNDER SUB-SECTION (2), FROM THE AMOUNT OF ANY SUM C REDITED OR PAID OR LIKELY TO BE CREDITED OR PAID DURING THE PR EVIOUS YEAR TO THE ACCOUNT OF THE SUB-CONTRACTOR DURING THE COURSE OF BUSINESS OF PLYING, HIRING OR LEASING GOODS CARRIAGES, ON PR ODUCTION OF A DECLARATION TO THE PERSON CONCERNED PAYING OR CREDI TING SUCH SUM, IN THE PRESCRIBED FORM AND VERIFIED IN THE PRE SCRIBED MANNER AND WITHIN SUCH TIME AS MAY BE PRESCRIBED, I F SUCH SUB-CONTRACTOR IS AN INDIVIDUAL WHO HAS NOT OWNED M ORE THAN TWO GOODS CARRIAGES AT ANY TIME DURING THE PREVIOUS YEAR: M/S. CHEMBUR GULMARG CHS LTD. ITA NO.2292 /MUM./2010 6 PROVIDED ALSO THAT THE PERSON RESPONSIBLE FOR PAY ING ANY SUM AS AFORESAID TO THE SUB-CONTRACTOR REFERRED TO IN THE SECOND PROVISO SHALL FURNISH TO THE PRESCRIBED INCO ME-TAX AUTHORITY OR THE PERSON AUTHORISED BY IT SUCH PARTI CULARS AS MAY BE PRESCRIBED IN SUCH FORM AND WITHIN SUCH TIME AS MAY BE PRESCRIBED; OR] ( II ) ANY SUM CREDITED OR PAID BEFORE THE 1ST DAY OF JU NE, 1972; [OR] [( III ) ANY SUM CREDITED OR PAID BEFORE THE 1ST DAY OF JU NE, 1973, IN PURSUANCE OF A CONTRACT BETWEEN THE CONTRA CTOR AND A CO-OPERATIVE SOCIETY OR IN PURSUANCE OF A CONTRACT BETWEEN SUCH CONTRACTOR AND THE SUB-CONTRACTOR IN RELATION TO AN Y WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK) UNDERTAKEN BY THE CONTRACTOR FOR THE CO-OPERATIVE S OCIETY.] [ EXPLANATION. FOR THE PURPOSES OF CLAUSE ( I ), GOODS CARRIAGE SHALL HAVE THE SAME MEANING AS IN THE EXPLANATION TO SUB- SECTION (7) OF SECTION 44AE.] SECTION 194C CONTEMPLATES THAT DEDUCTION SHOULD BE MADE (A) WHEN AN AMOUNT IS CREDITED TO THE ACCOUNT AND (B) W HEN THE AMOUNT IS ACTUALLY PAID. IN THIS CASE, THE UNDISPUT ED FACT IS, NO AMOUNT IS CREDITED TO THE ACCOUNT OF CONTRACTOR IN THE BOOKS OF SOCIETY. AS AND WHEN THE PAYMENT IS MADE, TAX IS DE DUCTED AT SOURCE. ON THIS FACTUAL MATRIX, WE UPHOLD THE ORDER OF THE COMMISSIONER (APPEALS) THAT THE DISALLOWANCE MADE U NDER SECTION 40A(IA) OF THE ACT, ON THE FACTS AND CIRCUM STANCES OF THE CASE, IS BAD-IN-LAW. WHEN THE ASSESSEE IS NOT REQUI RED TO DEDUCT ANY TAX AT SOURCE, THE QUESTION OF DISALLOWANCE UND ER SECTION 40A(IA) DOES NOT ARISE. 5. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13.5.2011 SD/- ASHA VIJAYRAGHAVAN JUDICIAL MEMBER SD/- J. SUDHAKAR REDDY ACCOUNTANT MEMBER MUMBAI, DATED: 13.5.2011 M/S. CHEMBUR GULMARG CHS LTD. ITA NO.2292 /MUM./2010 7 COPY TO : (1) THE ASSESSEE (2) THE RESPONDENT (3) THE CIT(A), MUMBAI, CONCERNED (4) THE CIT, MUMBAI CITY CONCERNED (5) THE DR, C BENCH, ITAT, MUMBAI TRUE COPY BY ORDER PRADEEP J. CHOWDHURY ASSISTANT REGISTRAR SR. PRIVATE SECRETARY ITAT, MUMBAI BENCHES, MUMBAI DATE INITIAL 1. DRAFT DICTATED ON 6.5.2011 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 9.5.2011 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 9.5.2011 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 9.5.2011 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 9.5.2011 SR.PS/PS 6. DATE OF PRONOUNCEMENT 13.5.2011 SR.PS 7. FILE SENT TO THE BENCH CLERK 13.5.2011 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER