M/s. Radha Krishna Developers, Baroda V. The Income tax Officer, Ward-2(3), Baroda

ITA 2726/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6344 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 21-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 01-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SOURYAWANSHI
• Keywords: Non-deduction of tax; Set aside
• Section: 143(3); 40(a)(ia); 80IB; 194C; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : C BENCH : AHMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HONB LE SHRI A.N.PAHUJA, A.M.) I.T.A. NO. 2726/AHD./2009 ASSESSMENT YEAR : 2005-2006 RADHAKRISHNA DEVELOPERS, BARODA VS- I.T.O., WARD-2(3), BARODA (PAN : ADZPK 0354K) (APPELLANT) (RESPONDENT) APPELLANT BY : MS. URVASHI SHODHAN, A.R. RESPONDENT BY : SHRI G.S.SOURYAWANSHI, SR.D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER DATED 26-08-2009 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-II, BAR ODA CONFIRMING THE ADDITION OF RS.2,76,317/- MADE BY THE AO UNDER SECTION 40(A)(IA ) OF THE I. T. ACT, 1961 FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED, THE FACTS ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION AND DEVELOPMENT OF REAL ESTATE. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME DECLARING TOT AL INCOME AT NIL ON 29.03.2006. THE AO FRAMED THE ASSESSMENT UNDER SECTION 143(3) ON 26 .11.2006L WHEREIN, ON VERIFICATION OF LEDGER ACCOUNT AND LABOUR EXPENSES AND LEDGER ACCOUNT OF CREDITORS, OBSERVED THAT THE ASSESSEE HAS CREDITED AMOUNT OF L ABOUR EXPENSES TO VARIOUS PERSONS WHERE THE AGGREGATE PAYMENT/INDIVIDUAL PAYMENT EXCE EDS RS.50,000/- AND RS.20,000/- RESPECTIVELY IN EACH CASE. HE FURTHER OBSERVED THAT AS PER THE PROVISIONS OF SECTION 194C, THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SO URCE FROM THIS PAYMENT WHICH WAS NOT DEDUCTED FROM THE PAYMENT MADE TO THE FOLLOWING PARTIES: SR.NO. NAME OF PARTY AMOUNT CREDITED / PAID (RS.) 1. DEV CONSTRUCTION RS.1,01,567/ - 2. MEHARBA CONSTRUCTION RS.1,74,750/- TOTAL RS.2,76,317/- ITA NO.2726/AHD/2009 2 2.1 FOR THE DETAILED REASON GIVEN IN PARA 3.2 OF TH E ASSESSMENT ORDER, THE AO DISALLOWED THE AFORESAID EXPENSES OF RS.2,76,317/-, AS PER THE PROVISIONS OF SECTION 40(A)(IA) OF THE I.T. ACT, 1961 ON THE GROUND THAT THESE EXPENSES CANNOT BE ALLOWED ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE, AS REQUI RED UNDER SECTION 194C OF THE I.T. ACT, 1961. 3. ON APPEAL BEFORE THE LD. CIT(A), IT WAS CONTENDE D THAT THE ASSESSEE FIRM HAS DONE PREPARATORY WORK ONLY. SECTION 40(A)(IA) IS AP PLICABLE TO THE EXPENSES CLAIMED AS DEDUCTION IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAIN OF BUSINESS OR PROFESSION. IN THE CASE OF THE ASSESSE E, NO INCOME IS WORKED OUT AS NO SALES HAS TAKEN PLACE DURING THE YEAR UNDER APPEAL. THEREFORE, NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA ) OF THE I.T. ACT, 1961. 3.1 AFTER CONSIDERING THE AFORESAID SUBMISSIONS, IN THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF RS.2,76,317/- FOR THE DETAILED REASONS GIVEN IN PARA 2.3, WHICH IS REPRODUCED HEREUNDER: 2.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTH ORIZED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFICER. SECTION 40 (A)(IA) READS 'NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDE R THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION ANY INTEREST, COMMI SSION OR BROKERAGE, [RENT ROYALTY] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPP LY OF LABOUR FOR CARRYING OUT ANY WORK), ON WHICH TAX IS DEDUCTIBLE AT SOURCE UND ER CHAPTER XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFT ER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEA R BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUBSECTION (1) OF SECTION 200 '. THE LEARNED AUTHORIZED REPRESENTATIVE HAS SOUGHT TO CLAIM THAT SECTION 40( A)(IA) IS APPLICABLE ONLY WHEN EXPENSES ARE CLAIMED IN COMPUTING TH E TOTAL INCOME AND NOT OTHERWISE. THERE APPEARS TO BE A FALLACY IN THIS A RGUMENT BECAUSE A PLAIN READING OF THE SECTION SAYS THAT THE 'FOLLOWING AMO UNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME'. THERE IS NO MENTION OF THE TERM EXPENSES. THE NEXT QUESTION IS WHETHER INCOME IS COMPUTED IN VIEW OF T HE FACT THAT THE ASSESSEE HAS NOT BOOKED ANY SALES IN THE CURRENT YEAR. THE ASSES SEE FILED A RETURN U/S.139. NOTICE U/S. 143(2) WAS ISSUED AND ASSESSMENT U/S. 143(3) WAS MADE BY THE ASSESSING OFFICER. SUB CLAUSE (II) OF SECTION 143 (3) READS ....... AFTER HEARING ITA NO.2726/AHD/2009 3 SUCH EVIDENCE AS THE ASSESSEE MAY PRODUCE AND SUCH OTHER EVIDENCE AS THE ASSESSING OFFICER MAY REQUIRE ON SPECIFIED POINTS, AND AFTER TAKING INTO ACCOUNT ALL RELEVANT MATERIAL WHICH HE HAS GATHERED, THE AS SESSING OFFICER SHALL, BY AN ORDER IN WRITING, MAKE AN ASSESSMENT OF THE TOTAL I NCOME OR LOSS OF THE ASSESSEE, AND DETERMINE THE SUM PAYABLE BY HIM OR R EFUND OF ANY AMOUNT DUE TO HIM ON THE BASIS OF SUCH ASSESSMENT'. THE ASSESS MENT HAS BEEN COMPLETED U/S. 143(3). BY THIS ORDER THE ASSESSING OFFICER COMPUTED THE INCOME OF THE APPELLANT. THE FACT THAT THE INCOME HAS BEEN COMPUT ED AT NIL DOES NOT PRECLUDE THE APPLICATION OF SECTION 40(A)(IA). SINCE THE APPELLANT HAD FAILED TO DEDUCT TAX AT SOURCE THE ASSESSING OFFICER WAS JU STIFIED IN DISALLOWING THE CLAIM OF RS.2,76,317/-. 4. AGGRIEVED WITH THE ABOVE, THE ASSESSEE IS IN APP EAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF T HE ASSESSEE, MS. URVASHI SHODHAN APPEARED AND FILED A PAPER BOOK CONTAINING 27 PAGES WHICH, INTER ALIA , INCLUDE A STATEMENT MADE BEFORE THE LD. CIT(A), FIN ANCIAL STATEMENTS OF ACCOUNTING YEAR 2004-05 RELEVANT TO THE ASSESSMENT YEAR 2005-0 6 AND ACCOUNTING YEAR 2007-08 RELEVANT TO THE ASSESSMENT YEAR 2008-08. SHE POINTE D OUT THAT ON VERIFICATION OF PAST FINANCIAL STATEMENT, IT CAN BE SEEN THAT THE ASSESS EE FIRM HAD CARRIED FORWARD ALL THE EXPENSES OF WORK-IN-PROGRESS FROM THE FINANCIAL YEA R 2006-07, PROFIT HAS BEEN WORKED OUT IN THE ASSESSMENT YEAR 2007-08. IN THE ASSESSME NT YEAR 2007-08, THE GROSS TOTAL INCOME WAS RS.2,87,405/- AND THE ENTIRE GROSS TOTAL INCOME IS EXEMPT UNDER SECTION 80IB OF THE I.T. ACT, 1961. IN THESE CIRCUMSTANCES, NO DISALLOWANCE IS CALLED FOR. ALTERNATIVELY, SHE, RELYING ON THE DECISION OF THE ITAT, J BENCH, MUMBAI IN THE CASE OF SAVALA ASSOCIATES VS- ITO REPORTED IN 35 SOT 14 8 (MUM) FOR THE PROPOSITION THAT THE ADDITION MADE BY THE AO IS WARRANTED ONLY IN RE SPECT OF PROJECTS WHICH ARE COMPLETED DURING THE RELEVANT YEAR AND SINCE NO PRO JECT IS COMPLETED IN THE ASSESSMENT YEAR UNDER APPEAL, NO ADDITION SHOULD BE MADE. SHE POINTED OUT THAT AT THE MOST, THE AO MAY CORRECT THE WORK-IN-PROGRESS OF IN COMPLETE WORK/PROJECT, IN ACCORDANCE WITH THE RATIO OF DECISION OF THE MUMBAI J BENCH OF THE ITAT IN THE CASE OF SAVALA ASSOCIATES ( SUPRA ). 6. ON THE OTHER HAND, SHRI G.S.SOURYAWANSHI, SR.D.R ., APPEARING ON BEHALF OF THE REVENUE, VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A). ITA NO.2726/AHD/2009 4 7. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT DUR ING THE ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO SHOW-CAUSE WHY EXPENSES OF RS.2,76,317/- SHOULD NOT BE DISALLOWED ON ACCOUNT OF NON-DEDUCTION OF TAX AT SO URCE. BEFORE THE AO, NO EXPLANATION WAS FURNISHED. EVEN WHATEVER EXPLANATIO N IS FURNISHED BEFORE US IS ALSO NOT FURNISHED BEFORE THE LD. CIT(A). IN VIEW OF THI S, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THIS ISSUE TO THE FILE OF THE AO WITH THE DIRECTION THAT THE AO WILL VERIFY THE CLAIM OF THE ASSESSEE MADE BEFORE US AND RE-ADJUDICATE THE INCOME OF THE ASSESSEE, KEEPING IN VIEW THE DECISION OF THE ITAT J BENCH, MUMBAI IN THE CASE OF SAVALA ASSOCIATES ( SUPRA ), AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEIN G HEARD TO THE ASSESSEE. 8. IN THE RESULT, FOR STATISTICAL PURPOSES, THE APP EAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED. THE ORDER PRONOUNCED IN THE CO URT ON 24.06.2011 SD/- SD/- (A.N.PAHUJA) (T.K. S HARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 24/06/2011 COPY OF THE ORDER IS FORWARDED TO:- (1) THE ASSESSEE (2) THE DEPARTMENT. (3) CIT (A.) CONCERNED. (4) CIT CONCERNED. (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AH MEDABAD. TALUKDAR/ SR. P.S.