M/s. Ferro Concrete Concrete Const. (I) Pvt. Ltd., Indore V. The Addl C.I.T., Indore

ITA 247/IND/2010

• Counselvise Citation: 24722714 RSA 2010
• Duration Of Justice: 11 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 14-02-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 26-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR MITRA
• Assessee Lawyers: C P RAWKA F
• Keywords: Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C.SHARMA, ACCOUNTANT MEMBER PAN NO. : AAACF2726K I.T.A.NO. 447, 270/IND/2008 AND 247/IND/2010 A.Y. : 2004-05, 2005-06 & 2006-07 M/S.FERRO CONCRETE CONST. INDIA PVT.LTD., DY. CIT, 4(1), INDORE. 3,5,7-B, BHAGIRATHPURA, VS. INDORE. APPELLANT RESPONDENT APPELLANT BY : SHRI C.P. RAWKA, F. C. A. RESPONDENT BY : SHRI PRADEEP KUMAR MITRA, SR. DR O R D E R PER R. C. SHARMA, A.M. THESE ARE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) FOR THE ASSESSMENT YEARS 2004-05,2005-06 AND 2006-7 IN THE MATTER OF ORDER PASSED U/S 143 OF THE INCOME- TAX ACT, 1961. -: 2: - 2 2. COMMON GROUNDS HAVE BEEN TAKEN IN ALL THE YEARS UNDER CONSIDERATION . THE GROUNDS TAKEN DURING THE ASSESSMENT YEAR 2004-05 READ AS UNDER:- 1. THAT THE LEARNED CIT[A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 400000/- OUT OF CONSTRUCTION EXPENSES ONLY ON ESTIMATION/ ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 2. THAT THE LEARNED CIT[A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 100000/- OUT OF REPAIRS & MAINTENANCE EXPENSES OF MACHINERY ONLY ON ESTIMATION /ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 3. THAT THE LEARNED CIT[A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT -: 3: - 3 RS. 100000/- OUT OF REPAIRS & MAINTENANCE EXPENSES OF VEHICLE ONLY ON ESTIMATION /ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 4. THAT THE LEARNED CIT [A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 250000/- OUT OF FREIGHT & CARTAGE EXPENSES ONLY ON ESTIMATION/ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 5. THAT THE LEARNED CIT [A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 300000/- OUT OF MACHINERY HIRE CHARGES ONLY ON ESTIMATION/ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 6. THAT THE LEARNED CIT [A] ERRED IN LAW AND -: 4: - 4 FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 100000/- OUT OF TRAVELING EXPENSES ONLY ON ESTIMATION/ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 7. THAT THE LEARNED CIT [A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 35000/- OUT OF CAR RUNNING, MAINTENANCE AND DEPRECIATION AS A PERSONAL EXPENSES ONLY ON ESTIMATION/ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 8. THAT THE LEARNED CIT[A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 40000/- OUT OF STAFF WELFARE EXPENSES ONLY ON ESTIMATION/ ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. -: 5: - 5 9. THAT THE LEARNED CIT[A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 25000/- OUT OF CAMP COLONY EXP. ONLY ON ESTIMATION/ ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 10.THAT THE LEARNED CIT[A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 25000/- OUT OF CONVEYANCE EXPENSES ONLY ON ESTIMATION/ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 11. THAT THE LEARNED CIT [A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 40000/- OUT OF MISCELLANEOUS EXP. ONLY ON ESTIMATION/ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 12. THAT THE LEARNED CIT[A] ERRED IN LAW AND -: 6: - 6 FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS. 50000/- OUT OF TELEPHONE EXP. ONLY ON ESTIMATION/ADHOC AND WITHOUT ANY BASIS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 13. THAT THE LEARNED CIT [A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE REJECTION MADE BY ASSESSING OFFICER ON ACCOUNT OF INTEREST RECEIPTS PROVIDED TO IT BY THE BANK AGAINST VARIOUS DEPOSITS TOWARDS BANK GUARANTEE FOR PERFORMANCE OF INFRASTRUCTURE PROJECT TO THE GOVT. DEPARTMENTS. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 14.THAT THE LEARNED CIT[A] ERRED IN LAW AND FACTS OF THE CASE AND CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICER FOR NETTING OF INTEREST INSPITE OF THE FACT THAT ASSESSEE COMPANY PURCHASED THE FDR OUT OF BORROWING FROM THE SAME BANK. THE DISALLOWANCE MADE THEREFORE IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. -: 7: - 7 15.THAT THE LEARNED CIT[A] ERRED IN LAW AND FACTS OF. THE CASE AND MADE THE ENHANCEMENT OF RELIEF CLAIMED AND ALLOWED BY ASSESSING OFFICER TOWARDS INFRASTRUCTURE PROJECT U/S 80-IA OF THE ACT. THE ACTION OF THE LEARNED CIT[A] IS TOTALLY WRONG AND ILLEGAL ON THE FACTS OF THE CASE. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. 4. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A COM PANY ENGAGED IN CONSTRUCTION ACTIVITIES OF CIVIL WORK FO R AND ON BEHALF OF VARIOUS GOVERNMENT DEPARTMENTS. IN THE CO URSE OF SCRUTINY ASSESSMENT FOR THE YEAR 2004-05, THE AO FO UND THAT THE ASSESSEE HAD DEBITED CONSTRUCTION EXPENSES OF R S. 5.43 CRORES IN ITS PROFIT AND LOSS ACCOUNT, WHICH ARE MA INLY PAYMENT TO LABOURERS ON ACCOUNT OF CONSTRUCTION WO RK, DRILLING AND GROUTING, CONCRETE EXPENSES, SHUTTERIN G EXPENSES, REINFORCEMENT, MACHINERY AND PLASTER, ROAD WORK PRE PARATION ETC. THE AO STATED THAT ON VERIFICATION OF VOUCHERS , IT IS FOUND THAT SOME OF THE VOUCHERS ARE NOT HAVING DETAILS OF MAGNITUDE -: 8: - 8 AND NATURE OF WORK EXECUTED AND SOME OF THE BILLS A RE NOT SUPPORTED BY VOUCHERS. HE, THEREFORE, OBSERVED THAT REASONABLENESS OF EXPENSES ARE NOT VERIFIABLE. ACCO RDINGLY, HE DISALLOWED A LUMP SUM PAYMENT OF RS. 4 LAKHS. SIMIL ARLY, OUT OF REPAIRING AND MAINTENANCE EXPENSES OF MACHINERY AMOUNTING TO RS. 12.83 LAKHS, A LUMP SUM DISALLOWAN CE OF RS. 1 LAKH WAS MADE. OUT OF VEHICLE REPAIRS AND MAINTEN ANCE EXPENSES OF RS. 14.79 LAKHS, A LUMP SUM DISALLOWANC E OF RS. 1 LAKH WAS MADE. OUT OF WEIGHT AND CARTAGE EXPENSES O F RS. 82.28 LAKHS, MACHINERY HIRE CHARGES OF RS. 62.31 LA KHS AND RS. 20.50 LAKHS UNDER HEAD TRAVELLING EXPENSES OF STAFF, RS. 2.54 LAKHS FOR TRAVELLING OF DIRECTORS, THE AO HAS DISALLOWED A SUM OF RS. 2.50 LAKHS, RS. 3 LAKHS AND RS. 1 LAKH R ESPECTIVELY. OUT OF STAFF WELFARE EXPENSES OF RS. 4.87 LAKHS, TH E AO DISALLOWED A SUM OF RS. 40,000/- BY OBSERVING THAT IT WAS EXORBITANT. IN ADDITION TO THIS, FOLLOWING DISALLOW ANCES WERE ALSO MADE BY THE ASSESSING OFFICER :- CAMP COLONY EXPENSES RS. 25,000/- CONVEYANCE EXPENSES RS. 25,000/- MISC. EXPENSES. RS. 40,000/- -: 9: - 9 TELEPHONE EXPENSES RS. 50,000/- 5. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED AL L THE DISALLOWANCES. THE LD. CIT(A) ALSO DISALLOWED C LAIM OF DEDUCTION U/S 80IA. AS AGAINST THE ABOVE ORDER OF C IT(A), THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D FOUND FROM RECORD THAT ONLY REASON GIVEN BY THE ASSESSIN G OFFICER FOR DISALLOWANCE WAS THAT HUGE EXPENDITURE HAS BEEN INC URRED AND THE DISALLOWANCE WAS MADE ON AD HOC BASIS WITHO UT POINTING OUT ANY OF THE EXPENSES, WHICH ARE NOT REL ATED TO BUSINESS OR WHICH IS EXCESSIVE OR UNREASONABLE EXPE NSES NOT SUPPORTED BY PROPER BILLS AND VOUCHERS. WE FOUND TH AT EVEN DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSE SSEE HAS FURNISHED FULL DETAILS OF EXPENSES AND ALSO PRODUCE D BOOKS OF ACCOUNT AND VOUCHERS, WHICH WERE VERIFIED BY THE AS SESSING OFFICER. NO DEFECT WAS POINTED OUT IN THE VOUCHERS OF EXPENSES SO PRODUCED. WE HAD ALSO MADE A COMPARISON OF DISAL LOWANCES OF SIMILAR EXPENSES MADE DURING THE YEAR UNDER CONS IDERATION -: 10: - 10 VIS--VIS DISALLOWANCES IN EARLIER TWO YEARS, KEEPI NG INTO VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES OF THE ASSE SSEE, WE DIRECT THE AO TO RETAIN THE DISALLOWANCE TO THE EXT ENT OF 25 % OF WHAT HAS BEEN MADE BY HIM AND DIRECT FOR DELETIN G THE BALANCES. 7. THE ASSESSEE HAS NOT PRESSED THE GROUND RAISED WITH REGARD TO DISALLOWANCE OF 80IA DEDUCTION, ACCORDING LY, WE CONFIRM THE ACTION OF CIT(A) AND DISMISS THIS GROUN D IN LIMINE. 8. IN THE ASSESSMENT YEAR 2004-05, THE ASSESSEE IS AGGRIEVED FOR MAKING TRADING ADDITION OF RS. 23,60, 873/-. THE IMPUGNED OBSERVATION OF THE AO WAS THAT THE ASSESSE E HAS NOT MAINTAINED DAY TO DAY STOCK REGISTER OR CONSUMPTION REGISTER. BY REJECTING THE BOOK RESULT, THE AO APPLIED NET PR OFIT RATE OF 5 % ON TOTAL RECEIPT OF RS. 13.52 CRORES. ACCORDINGLY , THE ADDITION OF RS. 23.60 LAKHS WAS MADE. 9. BY THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ADDITION. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE ASSESSEE HAD SHOWN NET PROFIT RATE 3 .04 % ON A TURNOVER OF RS. 14.12 CRORES AS AGAINST NET PROFIT RATE OF 2.31 -: 11: - 11 % ON TURNOVER OF RS. 13.96 CRORES IN THE PRECEDING YEAR. THUS, THERE WAS INCREASE IN NET PROFIT RATE DURING THE YE AR UNDER CONSIDERATION. MERELY BECAUSE THE ASSESSEE HAS NOT MAINTAINED RECORD WITH REGARD TO VALUATION ARRIVED AT IN RESPECT OF WORK IN PROGRESS, WHICH, KEEPING INTO VI EW THE NATURE OF ASSESSEES BUSINESS BEING CIVIL CONSTRUCT ION, THE EXACT DETERMINATION OF WHICH IS VERY DIFFICULT THE AO WAS NOT JUSTIFIED IN REJECTING BOOKS OF ACCOUNT WITHOUT PIN POINTING ANY OTHER DEFECTS THEREIN. IT IS ALSO NOT A CASE OF AO THAT ASSESSEE HAD REDUCED ITS NET PROFIT RATE DURING THE YEAR UND ER CONSIDERATION AS COMPARED TO PROFIT RATE SHOWN IN T HE PRECEDING YEARS. HOWEVER, AT THE VERY SAME TIME, WE FOUND THAT IN THE SUBSEQUENT YEAR, THE ASSESSEE HAD SHOWN NET PROFIT OF 4.66 %. KEEPING INTO VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES AND THE FACT THAT DEFECT POINTED OUT BY THE ASSESSING OFFICER WAS NOT MATERIAL, WE DIRECT THE A O TO APPLY NET PROFIT RATE OF 4 % AND RESTRICT THE TRADING ADD ITION ACCORDINGLY. -: 12: - 12 11. THE ASSESSEE HAS ALSO TAKEN GROUND FOR TREATMENT OF SHORT TERM CAPITAL GAIN ON SALE OF SHARES AMOUNTING TO RS. 11.22 LAKHS AS BUSINESS INCOME. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FOUND THAT THE DETAILS OF TRANSACTION OF SALE AND PURCHASE OF SHARES CARRIED OUT BY THE ASSESSEE DURING THE YEAR ARE AS FOLLOWS AS PER THE CHART :- S.NO. PARTICULARS PUR.DATE QTY. PUR. RATE AMT. SALE DATE QTY SALE RATE AMT PROFIT ON SALE 1. PETRONET LNG.LTD. 9.3.04 10500 15.00 157500 15.5.04 10500 23.55 24727 5 89776 2. POWER TRADING CORPN. 5.4.04 400 16.00 6400 20.5.04 400 48.30 19320 12920 3. M.P.INVT. 1.4.04 1000 35.45 35450 16.2.05 1000 1 25.96 125961.74 90511.74 4. LIME TAX INVT. 1.4.04 5000 14.52 72800 18.3.05 5000 200.42 1002121 .96 929521.96 TOTAL 1122728.70 13. FROM THE RECORD, WE FOUND THAT THE ASSESSEE WAS CONTINUOUSLY SHOWING ALL THE SHARES AS INVESTMENT I N BALANCE SHEET AND NOT AS STOCK IN TRADE. THE ASSESSEE WAS A LSO NOT ENGAGED IN THE BUSINESS OF PURCHASE AND SALE OF SHA RES. IN THE ENTIRE YEAR, TOTAL FOUR SCRIPTS WERE SOLD BY HIM. W E ALSO FOUND THAT TWO SCRIPTS WERE RETAINED BY THE ASSESSEE FOR REASONABLY LONG PERIOD. KEEPING INTO VIEW THE FREQUENCY OF TRA NSACTION AND THE FACT THAT THE ASSESSEE HAS ACQUIRED AND KEP T THE SHARES AS INVESTMENT, THERE IS NO JUSTIFICATION FOR TREATING THE -: 13: - 13 PROFIT ON SALE OF SUCH SHARES AS BUSINESS INCOME IN PLACE OF SHORT TERM CAPITAL GAINS OFFERED BY THE ASSESSEE. 14. GROUND RAISED WITH REGARD TO DISALLOWANCE OF 80I DEDUCTION WAS NOT PRESSED BY THE LD. AUTHORIZED REPRESENTATIVE. THE SAME IS, THEREFORE, DISMISSED I N LIMINE. 15. IN THE ASSESSMENT YEAR 2006-07, THE ASSESSEE IS AGGRIEVED FOR DISALLOWANCE OF VARIOUS EXPENDITURE. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. IN VIEW OF OUR DISCUSSION IN THE ASSESSMENT YEAR 2004- 05, WE DIRECT THE AO TO RETAIN THE ADDITION TO THE EXTENT OF 25 % OF DISALLOWANCE SO MADE. WE DIRECT ACCORDINGLY. 17. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 6 TH APRIL, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 6 TH APRIL,2011. CPU* 564