M/s. Kanak Construction, Panvel V. Assistant Commissioner of Income-tax,

ITA 247/PUN/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1551 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 10-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Assessee Lawyers: HARI KRISHAN
• Keywords: Business income
• Section: 143(3)

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC, PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO.247/PN/2015 ' ' / ASSESSMENT YEAR : 2010-11 M/S. KANAK CONSTRUCTION, PLOT NO.114, MCCH SOCIETY, SAI POOJA, PANVEL 410 206 . / APPELLANT PAN: AAEFK2824Q VS. ACIT, PANVEL CIRCLE, PANVEL . RESPONDENT / APPELLANT BY : SHRI HARI KRISHAN / RESPONDENT BY : SHRI P.L. KUREEL, ADDL.CIT DATE OF HEARING : 18.07.2016 / DATE OF PRONOUNCEMENT:22 .07.2016 / ORDER PER SUSHMA CHOWLA, JM: THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF CIT(A)-2, THANE DATED 16.12.2014 RELATING TO ASSESSMENT YEAR 2010-11 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE CIT(A) CONFIRMING THE ORDER OF ASSESSING OFFICER IS ERRONEOUS, UNJUST AND CONTRARY TO LAW AND F ACTS OF THE CASE. 2. THE LD.CIT(A) ERRED IN LAW AND ON FACTS BY CONFIR MING DISALLOWANCE OF PROVISIONS FOR PURCHASES AND EXPENDITURE RS.25,00,000/- AND AT THE SAME TIME NOT REDUCING THE CLOSING WIP MADE BY AO. ITA NO.247/PN/2015 M/S. KANAK CONSTRUCTION 2 3. THE LD.CIT(A) ERRED IN LAW AND ON FACTS BY CONFIR MING DISALLOWANCE U/S.40(A)(IA) OF RS.60,957/- MADE BY AO. 4. APPELLANT CRAVES LEAVE TO ADD/ALTER ANY OF THE GR OUND OF APPEAL ON OR BEFORE THE DATE OF FINAL HEARING OF AP PEAL. 3. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.1 IS G ENERAL IN NATURE AND THE SAME IS DISMISSED. 4. THE ISSUE RAISED VIDE GROUND OF APPEAL NO.2 IN T HE PRESENT APPEAL IS AGAINST THE DISALLOWANCE OF PROVISION MAD E FOR PURCHASE AND EXPENDITURE OF RS.25 LAKHS BY THE AUTHORITIES BELOW . BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS A SMALL TIME BUILDER AND DURING THE YEAR SHOWN TOTAL SALES OF RS.1,74,01,000/- ON WHICH IT H AD DECLARED GROSS PROFIT OF RS.58,70,139/- AND NET PROFIT OF RS.16,26 ,444/-. IN THE PRECEDING YEAR IT HAD DECLARED NIL GROSS PROFIT AND NIL NET PROFIT. THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT AND HAD DEBITED A SUM OF RS.25 LAKHS AS PROVISION FOR THE COMPLETION OF THE PROJECT. THE AO WAS OF THE VIEW THAT THE SAID LIABILITY WAS NOT ASCERTAINABLE THIS YEAR. FURTHER, SINCE THE ASSESSEE HAD NOT INCURRED THE EX PENSES DURING THE YEAR AND HAD MERELY MADE A PROVISION IN THE PROFIT AND LOSS ACCOUNT TO BE INCURRED IN THE FUTURE, THE SAID PROVISION WAS H ELD TO BE NOT ALLOWABLE IN THE HANDS OF THE ASSESSEE. THE AO ACKNOWLEDGED THAT THE ASSESSEE HAD FILED THE COPY OF ITS BALANCE SHEET AND THE PRO FIT AND LOSS ACCOUNT FOR THE A.Y. 2011-12 WHEREIN HE HAD SHOWN THE EXPENSES HAVING BEEN ALREADY INCURRED. 5. BEFORE THE CIT(A) THE ASSESSEE CLAIMED THAT IN C ASE THE SAID EXPENDITURE IS DISALLOWED, THEN BEFORE REMUNERATION TO PARTNERS, THE GROSS PROFIT RATE WOULD WORK OUT TO 38% WHICH WAS V ERY HIGH. FURTHER, IT WAS CLAIMED THAT FOR THE FINANCIAL YEAR ENDING 31-0 3-2010 CERTAIN ITA NO.247/PN/2015 M/S. KANAK CONSTRUCTION 3 SUPPLIES OF THE MATERIAL WERE MADE AND ALSO THE WOR K WAS CARRIED OUT, BUT THE BILLS WERE RAISED IN SUBSEQUENT YEAR ON APP ROVAL OF WORK AND CONFIRMATION OF PAYMENT. BECAUSE OF THESE FACTS TH E ASSESSEE CLAIMED THAT IT HAD MADE A PROVISION IN ITS BOOKS OF ACCOUN T FOR SUCH EXPENDITURE AND AT THE SAME TIME HAD SHOWN THE SAME AS CLOSING STOCK. THE ASSESSEE CLAIMED THAT THE PROVISION MADE BY IT WAS FORMING PART OF THE WORK-IN-PROGRESS AND IN CASE THE ADDITION OF RS.25 LAKHS IS TO BE MADE THE SAME IS ALSO REQUIRED TO BE DELETED IN THE COMP UTATION OF INCOME. 6. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESS EE REFERRED TO THE TAX AUDIT REPORT AND POINTED OUT THAT THE ASSES SEE WAS MAINTAINING MERCANTILE SYSTEM OF ACCOUNTING AND HAD ACCOUNTED F OR THE SAID EXPENDITURE WHICH IT WAS IN THE PROCESS OF INCURRIN G AT THE CLOSE OF THE YEAR AND FOR WHICH THE PAYMENT WAS MADE IN THE SUCC EEDING YEAR. HOWEVER, THE AO DENIED THE SAID EXPENDITURE SINCE I T WAS ONLY A PROVISION. 7 THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVEN UE PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. 8. ON THE PERUSAL OF THE RECORD AND AFTER CONSIDERI NG THE SUBMISSIONS OF BOTH THE AUTHORISED REPRESENTATIVES, IT IS APPARENT THAT IN THE PRESENT APPEAL THE FIRST ISSUE RAISED BY THE AS SESSEE IS AGAINST THE DISALLOWANCE OF PROVISION MADE FOR PURCHASE AND EXP ENDITURE AT RS.25 LAKHS. THE ASSESSEE WAS A SMALL TIME BUILDER AND D URING THE YEAR UNDER CONSIDERATION IT HAD RECOGNISED THE SALE OF ITS PRO JECT. AGAINST THE PROFITS OF THE SAID PROJECT THE ASSESSEE CLAIMED THAT CERTA IN EXPENDITURE WAS TO BE TAKEN CARE OF AND MADE A PROVISION ON ACCOUNT OF PURCHASE AND EXPENDITURE TO THE TUNE OF RS.25 LAKHS. IN THE WRI TTEN SUBMISSIONS FILED BEFORE THE CIT(A) THE ASSESSEE CLAIMED THAT IT HAD ALREADY INCURRED THE ITA NO.247/PN/2015 M/S. KANAK CONSTRUCTION 4 EXPENDITURE AND HAD RECEIVED THE MATERIAL BUT BECAU SE OF THE MEASUREMENT, THE PAYMENT COULD NOT BE MADE BY THE C LOSE OF THE YEAR. HOWEVER, ADMITTEDLY AND UNDISPUTEDLY THE PAYMENT WA S MADE IN THE FINANCIAL YEAR 2010-11. THE AUTHORITIES BELOW WERE OF THE VIEW THAT SINCE THE PAYMENT HAS NOT BEEN MADE DURING THE YEAR THE WORK HAS NOT BEEN COMPLETED AND HENCE THE PROVISION MADE BY THE ASSESSEE IS NOT RELATABLE TO THE FINANCIAL YEAR 2009-10 BUT IS TO B E ALLOWED IN THE FINANCIAL YEAR 2010-11, WHEN THE SAME WAS INCURRED. THE ASSESSEE ADMITTEDLY IS FOLLOWING MERCANTILE SYSTEM OF ACCOUN TING AND IN LIEU THEREOF THE ASSESSEE WAS OBLIGED TO RECOGNISE THE I NCOME AND ALSO THE EXPENDITURE RELATABLE TO THE FINANCIAL YEAR 2009-10 , BY COMPUTING THE PROFITS OF BUSINESS FOR A.Y. 2010-11. IN LIEU THER EOF THE ASSESSEE HAS RECOGNISED THE EXPENDITURE RELATABLE TO THE PROJECT SOLD BY IT, DURING THE YEAR, BY MAKING A PROVISION OF EXPENDITURE AS DUE A S ON THE CLOSE OF THE YEAR. THE SAID PROVISION IS ON ACCOUNT OF PURCHASE OF RAW MATERIAL AND OTHER EXPENDITURE AND THE ASSESSEE CLAIMS THAT BECA USE THE SAID WORK DONE COULD NOT BE MEASURED HENCE ONLY A PROVISION W AS MADE AND THE PAYMENT IN THIS REGARD WAS MADE IN THE SUCCEEDING Y EAR. BOTH THE AO AND THE CIT(A) HAVE NOT DISPUTED THE SAID FACTS OF THE CASE. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES, I AM OF TH E VIEW THAT THE ASSESSEE IS ENTITLED TO CLAIM THE BENEFIT OF EXPEND ITURE ON ACCOUNT OF PROVISION MADE TOTALLING TO RS.25 LAKHS. ACCORDING LY, I HOLD SO. THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE IN T HIS REGARD. CONSEQUENTLY, GROUND OF APPEAL NO.2 RAISED BY THE A SSESSEE IS ALLOWED. 9. THE ISSUE IN GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE IS AGAINST THE DISALLOWANCE MADE U/S.40(A)(IA) OF THE ACT OF RS.60,957/-. ITA NO.247/PN/2015 M/S. KANAK CONSTRUCTION 5 10. THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSES SEE POINTED OUT THAT THE FINANCE ACT, 2012 HAS INSERTED SECOND PROV ISO AND HENCE THE ASSESSEE WAS ENTITLED TO CLAIM THE EXPENDITURE. HO WEVER, THE LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE WAS UNAB LE TO GIVE THE PROOF AS TO WHETHER THE PAYEE HAS DEPOSITED THE TAX ON THE SAID AMOUNT OF RS.60,957/-. IN THE ABSENCE OF THE SAME, I FIND NO MERIT IN THE CLAIM OF THE ASSESSEE AND THE SAME IS REJECTED. GROUND O F APPEAL NO.3 RAISED BY THE ASSESSEE IS THUS DISMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 22 ND DAY OF JULY, 2016. SD/- (SUSHMA CHOWLA) / JUDICIAL MEMBER / PUNE ; DATED : 22 ND JULY, 2016 . SATISH $ %'( )( / COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; ' () THE CIT(A)-2, THANE ' THE CIT-2, THANE % ((), ), , - / DR SMC, ITAT, PUNE; 0 / GUARD FILE. / BY ORDER % ( // TRUE COPY // 23 ( ) / SR. PRIVATE SECRETARY ) , ITAT, PUNE