M/s The Spunpipe & Construction Co. (Baroda) Pvt. Ltd., Baroda V. DCIT, Circle-2(1) (1), Baroda

ITA 2594/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9128 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 23-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: A C SHAH
• Keywords: Business income; Earning of tax free income; Proportionate interest; Date of conversion; Fair market value; Revised return; Rule 8D; Set aside
• Section: 143(3); 14A

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NOS. 2594 & 2612/AHD/2017 ( ASSESSMENT YEARS : 2013-14 & 2014-15) THE SPUNPIPE & CONSTRUCTION CO. (BARODA) PVT. LTD. A/505-506, ALKAPURI ARCADE, 5 TH FLOOR, OPP. HOTEL WELCOME GROUP, R. C. DUTT ROAD, BARODA - 390007 / VS. THE D.C.I.T. CIRCLE- 2(1)(1), AAYAKAR BHAVAN, RACE COURSE CIRCLE, BARODA ./ ./ PAN/GIR NO. : AAACT6738R ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI A. C. SHAH, A.R. / RESPONDENT BY : SHRI S. K. DEV, SR.D.R. DATE OF HEARING 02/07/2019 !'# / DATE OF PRONOUNCEMENT 09/07/2019 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTAN CE OF THE ASSESSEE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, VADODARA (CIT(A) IN SHORT), DATED 20 .07.2017 & 31.10.2017 ARISING IN THE ASSESSMENT ORDERS DATED 2 2.03.2016 & 16.12.2016 PASSED BY THE ASSESSING OFFICER (AO) UND ER S. 143(3) OF ITA NO. 2594 & 2612/AHD/17 [THE SUNPIPE & CONSTRUCTION CO. VS. DCIT] A.Y.2013-14 & 2014-15 - 2 - THE INCOME TAX ACT, 1961 (THE ACT) CONCERNING AYS. 2013-14 & 2014- 15. 2. THE GRIEVANCES RAISED BEING COMMON, BOTH THE CAS ES WERE HEARD TOGETHER AND DISPOSED OF BY THE COMMON ORDER. 3. WE SHALL FIRST TAKE UP ASSESSEES APPEAL IN ITA NO. 2594/AHD/2017 CONCERNING AY 2013-14. ITA NO. 2594/AHD/2017-AY-2013-14 4. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RE AD AS UNDER:- 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 2,57,697 UNDER SECTION 14A TO THE REGULAR INCOME IN AS MUCH AS THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AND THA T THE QUESTION OF DISALLOWANCE UNDER SECTION 14A DOES NOT ARISE. 1.1 THE APPELLANT SAYS AND SUMMIT THAT THE ONU S IS ON THE AO TO PROVE THAT THE ASSESSEE HAS INCURRED EXPENDITURE IN EARNING EXEMPT INCOME. 2. THE LEARNED CIT(A) HAS ERRED IN CONFIRMIN G THE ADDITION OF RS. 49,902 UNDER SECTION 36(1)(VA) ON THE GROUND THAT EMPLOYEES CONT RIBUTION TOWARDS PF IS NOT PAID WITHIN DUE DATE IN AS MUCH AS IT IS PAID B EFORE THE END OF THE MONTH AND THAT IN ANY CASE IT IS PAID BEFORE THE END OF F INANCIAL YEAR. 3. THE LEARNED AO OUGHT TO HAVE COMPUTED THE BUSINESS INCOME ON SALE OF FLATS BY DEDUCTING FAIR MARKET VALUE ON THE DATE OF CONVE RSION OF LAND FROM THE SALE PROCEEDS OF THE FLATS AND THAT ALL RELEVANT MA TERIAL IS ON RECORD. 5. WHEN THE MATTER WAS CALLED FOR HEARING, THE LEAR NED AR REFERRED TO THE ASSESSMENT ORDER AND SUBMITTED THAT THE DISA LLOWANCE MADE BY THE AO UNDER S.14A OF THE ACT TOWARDS EXPENDITURE A TTRIBUTABLE THE EXEMPT INCOME COMPRISES OF RS.1,39,076/- UNDER RULE 8D(2)(II) TOWARDS PROPORTIONATE INTEREST EXPENDITURE AND RS.1 ,18,621/- TOWARDS ADMINISTRATIVE EXPENDITURE RULE 8D(2)(III) OF THE I T RULES. AGGREGATE DISALLOWANCE WAS THUS MADE AT RS.2,57,697/-. IN TH E CONTEXT OF INTEREST DISALLOWANCE OF RS.1,39,076/-, THE LEARNED AR REFERRED TO THE ITA NO. 2594 & 2612/AHD/17 [THE SUNPIPE & CONSTRUCTION CO. VS. DCIT] A.Y.2013-14 & 2014-15 - 3 - FINANCIAL STATEMENT PLACED BY WAY OF PAPER BOOK AND SUBMITTED THAT THE INVESTMENT HAVING POTENTIAL TO YIELD DIVIDEND I NCOME IS RS.2.80 CRORE WHEREAS THE ASSESSEE HOLDS ITS OWN FUNDS IN T HE VICINITY OF RS.22.82 CRORES. IT WAS THUS SUBMITTED THAT THE OW N FUNDS AT THE DISPOSAL OF THE ASSESSEE SURPASSES THE CORRESPONDIN G INVESTMENT IN A VERY SIGNIFICANT WAY. THIS BEING SO, A PRESUMPTION WOULD ARISE IN FAVOUR OF THE ASSESSEE THAT OWN FUNDS HAVE BEEN UTI LIZED FOR INVESTMENTS GIVING RISE TO EXEMPT INCOME IN THE LIG HT OF LONG LINE OF JUDICIAL PRECEDENTS INCLUDING; (I) CIT VS. UTI BANK LTD. [2013] 32 TAXMANN.COM 370 (GUJ), (II) CIT VS. RELIANCE UTILIT IES & POWER LTD. [2009] 313 ITR 340 (BOM.) & (III) CIT VS. HDFC BANK LTD. 366 ITR 505 (BOM.). AS REGARDS ADMINISTRATIVE EXPENDITURE, THE LEARNED AR SUBMITTED THAT ONLY REASONABLE DISALLOWANCE SHOULD BE MADE FOR AN EXEMPT INCOME OF RS.10,34,094/- AND ESTIMATIONS OF RS.1,18,621/- BY APPLYING FAMILY UNDER RULE 8D(2)(III) IS EXCESSIVE AND UNCALLED FOR. 6. THE LEARNED DR FOR THE REVENUE RELIED UPON THE O RDERS OF THE LOWER AUTHORITIES. 7. IN THE LIGHT OF THE FACT THAT OWN FUNDS ARE IN S UBSTANTIALLY EXCESS OF THE CORRESPONDING INVESTMENT, THERE IS NO WARRAN T TO INVOKE RULE 8D(2)(II) IN VIEW OF THE JUDICIAL PRECEDENTS NOTED ABOVE. THEREFORE, DISALLOWANCE OF RS.1,39,076/- UNDER RULE 8D(2)(II) REQUIRES TO BE DELETED BY THE AO. AS REGARDS THE ADMINISTRATIVE A ND GENERAL EXPENSES OF RS.1,18,621/-, THE ASSESSEE COULD NOT E XPLAIN WITH EVIDENCE ABOUT THE ACTUAL EXPENDITURE ATTRIBUTABLE TO EARNING OF SUCH INCOME. THE STATUTE HAS PROVIDED A FORMULA FOR ASC ERTAINING DISALLOWANCE WHICH CANNOT BE ORDINARILY DEPARTED FR OM. NO COMPELLING CIRCUMSTANCES HAVE BEEN SHOWN. THEREFOR E, WE DECLINE TO INTERFERE WITH THE DISALLOWANCE OF RS.1,18,621/- MA DE UNDER RULE 8D(2)(III) OF THE IT RULES. ITA NO. 2594 & 2612/AHD/17 [THE SUNPIPE & CONSTRUCTION CO. VS. DCIT] A.Y.2013-14 & 2014-15 - 4 - 8. GROUND NO.1 OF THE ASSESSEE IS PARTLY ALLOWED. 9. GROUND NO.2 CONCERNS DISALLOWANCE OF RS.49,902/- UNDER S.36(1)(VA) TOWARDS DEFAULT IN PAYMENT OF EMPLOYEES CONTRIBUTION TO PF. IN VIEW OF THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN CASE OF CIT VS. GUJARAT STATE ROAD TRANSPORT CORPOR ATION [2014] 366 ITR 170 (GUJ), WE DO NOT FIND ANY MERIT IN THE GRIEVANCE OF THE ASSESSEE ON THIS SCORE. 10. GROUND NO.2 OF THE ASSESSEES APPEAL IS DISMISS ED. 11. GROUND NO.3 OF THE ASSESSEES APPEAL CONCERNS M ETHOD OF COMPUTATION OF BUSINESS INCOME AS A CONSEQUENCE OF SALE OF FLAT. IT IS THE CASE OF THE ASSESSEE THAT IT HAS CONVERTED CERT AIN PARCELS OF LAND ADMEASURING 8429 SQ.MTR. PURCHASED DURING FY 1994-9 5 IN STOCK-IN- TRADE ON 31.03.2008. THE FAIR MARKET VALUE (FMV) A S ON 31.03.2008 AS PER APPROVED VALUER REPORT DATED 20.03.2008 STAN DS AT RS.4,88,88,200/-. IT WAS SUBMITTED THAT OUT OF 842 9 SQ.MTR. 3025 SQ.MTR. WERE SOLD IN FY 2010-11 CONCERNING AY 2011- 12. THE BALANCE LAND OF 5404 SQ.MTR. WAS USED FOR CONSTRUCTION OF B UILDING PROJECT (ARUN VILA SCHEME) FROM FY 2008-09 ONWARDS, THE CO NSTRUCTION STARTED IN FY 2008-09. SOME PORTIONS OF THE FLATS WERE READY DURING FY 2011-12 I.E. AY 2012-13. THE ASSESSEE COMPANY S OLD THREE FLATS IN FY 2012-13 CONCERNING AY 2013-14 IN QUESTION. T HE ASSESSEE SUBMITTED ALL THE RELEVANT DETAILS IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE PRECEDING AY 2012-13. THE ASSE SSEE PREPARED THE COMPUTATION OF INCOME CORRECTLY FOR AY 2012-13. HO WEVER, THE ASSESSEE COMMITTED MISTAKE DURING AY 2013-14 IN QUE STION AS WELL AS IN AY 2014-15 & 2015-16. THE LEANED AR FOR THE ASS ESSEE REFERRED TO THE STATEMENT OF INCOME AND ASSESSMENT ORDER FOR RE CEIVING AY 2012- 13 TO DEMONSTRATE THE BONAFIDES IN THE ACT OF THE A SSESSEE. ITA NO. 2594 & 2612/AHD/17 [THE SUNPIPE & CONSTRUCTION CO. VS. DCIT] A.Y.2013-14 & 2014-15 - 5 - 11.1 THE LEARNED AR THUS SUBMITTED THAT THE COST PR ICE OF FMV ON THE DATE OF CONVERSION OF LAND INTO STOCK-IN-TRADE IS L IABLE TO BE TAXED AS LONG TERM CAPITAL GAIN AND EXCESS CONSIDERATION ACC RUED / RECEIVED OVER AND ABOVE FMV IS LIABLE TO BE TAXED AS BUSINES S INCOME. IN THE AY 2012-13, THE ASSESSEE COMMITTED A MISTAKE OF DED UCTING ONLY ORIGINAL COST PRICE INSTEAD OF BIFURCATING THE PROF ITS INTO LONG TERM CAPITAL GAIN AND BUSINESS INCOME HAVING REGARD THE FMV OF THE LAND AT THE TIME OF CONVERSION WHILE DRAWING THE COMPUTATIO N OF INCOME. THE LEARNED AR INSISTED THAT ALL THE RELEVANT DETAILS A RE AVAILABLE ON RECORD AND THEREFORE SOUGHT A DIRECTION THAT THE TAX LIABI LITY SHOULD BE DETERMINED APPLYING CORRECT POSITION OF LAW NOTWITH STANDING ERROR COMMITTED BY ASSESSEE INSTEAD OF TAKING ADVANTAGE O F MISTAKE COMMITTED BY THE ASSESSEE. THE LEARNED AR RELIED U PON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. MITESH IMPLEX 367 ITR 85 (GUJ.); CIT VS. MILTON LAMINATES LTD. [2 013] 37 TAXMANN.COM 249 (GUJ) AND THE DECISION OF THE CO-ORDINATE BENCH IN DCIT VS. GREENLAND INFRACON P. LTD. IN ITA NO. 2029 & 2040/AHD/2016 ORDER DATED 14.11.2018 FOR ENTERTAINING SUCH PLEA FOR DETERMINATION OF THE INCOME. IT WAS THUS SUBMITTED THAT ONCE THE ASSESSEE IS IN A POSITION TO SAY THAT IT HAS BEEN O VER ASSESSED UNDER THE PROVISIONS OF THE ACT OR HAS BEEN FASTENED WITH TAX LIABILITY NO LEGITIMATELY DUE EVEN ON ACCOUNT OF ASSESSEES OWN MISTAKE OR OTHERWISE, THE REVENUE IS UNDER DUTY TO ASSESS CORR ECT INCOME. THE LEARNED AR ACCORDINGLY SOUGHT APPROPRIATE ORDERS IN THIS REGARD. 11.2 THE LEARNED DR RELIED UPON THE ORDERS OF THE L OWER AUTHORITIES WITHOUT ANY FURTHER ADDITION TO IT. 12. WE HAVE CONSIDERED THE SUBMISSIONS ON BEHALF OF THE ASSESSEE CAREFULLY AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE REFER TO THE OBSERVATIONS OF THE CO-ORDINATE BENCH IN PARA N O.9 OF THE DECISION ITA NO. 2594 & 2612/AHD/17 [THE SUNPIPE & CONSTRUCTION CO. VS. DCIT] A.Y.2013-14 & 2014-15 - 6 - RENDERED IN THE CASE OF GREELAND INFRACON (SUPRA) WHICH IS REPRODUCED HEREUNDER: 9. IT IS TRITE THAT THE AUTHORITIES UNDER THE ACT ARE UNDER SACROSANCT OBLIGATION TO ACT IN ACCORDANCE WITH LAW. TAX CAN BE COLLECTED ONLY AS PROVIDED UNDER THE ACT. IF AN ASSESSEE, UNDER A MI STAKE, MIS-CONCEPTION OR NOT BEING PROPERLY INSTRUCTED, IS OVER ASSESSED, THE AUTHORITIES UNDER THE ACT ARE REQUIRED TO ENSURE THAT ONLY LEGITIMATE TAX DUES ARE COLLECTED. THIS IS THE VIEW WHICH FLOWS FROM INNUMERABLE JUDGM ENTS INCLUDING CIT VS. SHELLY PRODUCTS (2003) 261 ITR 367 (SC), S. R. KOSHTI VS. CIT (2005) 276 ITR 165 (GUJ), ESTER INDUSTRIES VS. CIT (2009) 185 TAXMAN 266 (DELHI) AND CIT VS. PRUTHVI BROKERS & SHAREHOLDERS (P.) LTD. [2012] 349 ITR 336 (BOM). THE ESSENCE OF THESE DECISIONS ARE THAT MERE ADMISSION ON THE PART OF THE ASSESSEE WITH RESPECT TO AN ADDI TION/DISALLOWANCE IN ITS ORIGINAL RETURN OR IN REVISED RETURN WOULD NOT IPSO FACTO BAR AN ASSESSEE FROM CLAIMING AN EXPENSE OR DISPUTING AN ADDITION I F IT IS OTHERWISE PERMISSIBLE UNDER LAW. IT IS THUS WELL SETTLED THA T IF A PARTICULAR INCOME IS NOT TAXABLE UNDER THE ACT, IT CANNOT BE TAXED ON THE BASIS OF ESTOPPEL OR ANY OTHER EQUITABLE DOCTRINE. THE REVENUE AUTHORIT IES CANNOT ENFORCE UNTENABLE ACTIONS OF THE ASSESSEE AGAINST IT WHICH LED TO DECLARATION OF INCOME OF HIGHER AMOUNT INCORRECTLY. IT IS THUS OP EN TO ASSESSEE TO SHOW THAT IT WAS OVER ASSESSED IN CORRECTLY OWING TO ITS OWN MISTAKE. 13. IN THE LIGHT OF THE OBSERVATIONS SO MADE, WE FI ND MERIT IN THE PLEA OF THE ASSESSEE FOR SETTING RIGHT THE ERROR CO MMITTED BY THE ASSESSEE. WE, THEREFORE, ARE DISPOSED TO ENTERTAIN DEVIATION IN THE CLAIM ORIGINALLY MADE WHICH MAY RESULT IN LOWER TAX LIABILITY. THE ISSUE HOWEVER HAS NOT BEEN EXAMINED BY THE REVENUE AUTHORITIES ON FACTS. THEREFORE, WE CONSIDER IT APPROPRIATE TO SE T ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN THE LI GHT OF SUBMISSIONS TO BE MADE BY THE ASSESSEE WITH FACTUAL EVIDENCES BEFO RE AO. IT WILL THUS BE OPEN TO THE ASSESSEE TO SHOW BEFORE THE AO THAT IT WAS OVER ASSESSED INCORRECTLY OR SUBJECTED TO HIGHER TAX IN ANY MANNER OWING TO ITS OWN MISTAKE. THE AO SHALL DETERMINE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING FAIR OPPORTUNITY TO THE ASSESSEE. GROUND NO.3 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED FOR STATIS TICAL PURPOSES. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO . 2594/AHD/2017 FOR AY 2013-14 IS PARTLY ALLOWED. ITA NO. 2594 & 2612/AHD/17 [THE SUNPIPE & CONSTRUCTION CO. VS. DCIT] A.Y.2013-14 & 2014-15 - 7 - ITA NO. 2612/AHD/2017-AY-2014-15 15. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE R EAD AS UNDER:- 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 3,61,645 UNDER SECTION 14A TO THE REGULAR INCOME IN AS MUCH AS THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AND THA T THE QUESTION OF DISALLOWANCE UNDER SECTION 14A DOES NOT ARISE. 1.1 THE APPELLANT SAYS AND SUMMIT THAT THE ONU S IS ON THE AO TO PROVE THAT THE ASSESSEE HAS INCURRED EXPENDITURE IN EARNING EXEMPT INCOME. 2. THE LEARNED AO OUGHT TO HAVE COMPUTED THE BUSINESS INCOME ON SALE OF FLATS BY DEDUCTING FAIR MARKET VALUE ON THE DATE OF CONVE RSION OF LAND FROM THE SALE PROCEEDS OF THE FLATS AND THAT ALL RELEVANT MA TERIAL IS ON RECORD. 16. AS PER 1 ST GROUND, THE ASSESSEE HAS DISPUTED THE DISALLOWANCE OF RS.3,61,695/- UNDER S.14A OF THE ACT. THE ISSUE BE ING PERI MATERIA WITH GROUND NO.1 OF THE ASSESSEES APPEAL IN AY 201 3-14, OUR OBSERVATIONS THEREIN WOULD APPLY MUTATIS MUTANDIS . THE DISALLOWANCE OF RS.2,24,364/- ON ACCOUNT OF INTEREST EXPENDITURE BY INVOKING RULE 8D(2)(II) IS DIRECTED TO BE DELETED. IN PARITY WIT H OBSERVATIONS MADE IN AY 2013-14, THE DISALLOWANCE OF RS.1,37,280/- CO NCERNING AY 2013-14 IS UNDER RULE 8D(2)(III) IS HOWEVER NOT INT ERFERED. ASSESSEE THUS PARTLY SUCCEEDS IN ITS APPEAL TO THE EXTENT OF RS.2,24,365/- AS AGAINST TOTAL DISALLOWANCE OF RS.3,61,645/- CARRIED OUT BY THE AO. 17. GROUND NO.1 OF THE ASSESSEES APPEAL IS ACCORDI NGLY PARTLY ALLOWED. 18. THE GRIEVANCE RAISED AS PER GROUND NO.2 IS PERI MATERIA WITH GROUND NO.3 CONCERNING AY 2013-14 (SUPRA). IN THE LIGHT OF OBSERVATIONS MADE CONCERNING AY 2013-14, THE ISSUE CONCERNING GROUND NO.2 IS SET ASIDE AND RESTORED TO THE FILE O F THE AO FOR FRESH DETERMINATION IN ACCORDANCE WITH LAW AFTER GIVING O PPORTUNITY TO THE ASSESSEE IN THE SAME MANNER AS DIRECTED IN AY 2013- 14. ITA NO. 2594 & 2612/AHD/17 [THE SUNPIPE & CONSTRUCTION CO. VS. DCIT] A.Y.2013-14 & 2014-15 - 8 - 19. GROUND NO.2 OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO . 2612/AHD/2017 FOR AY 2014-15 IS PARTLY ALLOWED. 21. IN THE COMBINED RESULT, BOTH APPEALS OF THE ASS ESSEE ARE PARTLY ALLOWED. SD/- SD/- (RAJPAL YADAV) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: DATED 09/07/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 : / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 09/07/2019