ACIT, WARDHA CIRCLE, Wardha V. SHRI NITIN BHAURAO SALVE, Yavatmal

ITA 273/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1656 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 12-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Assessee Lawyers: A O BHANDARI
• Keywords: Opportunity of being heard; Tax effect

Judgement Text

1 ITA NO. 273/NAG/2013 IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T. A. NO. 273/NAG/2013 ASSESSMENT YEAR : 2009 10. ASSTT. COMMISSIONER OF INCOME TAX, SHRI NITIN BHAORAO SALVE, WARDHA CIRCLE, WARDHA. V/S. WADGAON ROAD, YAVATMAL 445001. (APPELLANT) RESPONDENT. APPELLANT BY : SHRI NARENDRA KANE. RESPONDENT BY : SHRI A.O. BHANDARI. DATE OF HEARING : 2 4 - 08 - 2015. DATE OF PRONOUNCEMENT : 24 TH SEPT., 2015. O R D E R PER SHRI SHAMIN Y AHYA, A.M . THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - I I , NAGPUR DATED 20 03 2013 AND PERTAINS TO ASSESSMENT YEAR 200 9 10. THE GROUND OF APPEAL READ S AS UNDER : IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT(A) ERRED IN DELETING THE ADDITION OF ` 10,08,670/ AND ` 32,80,649/ CLAIMED AS SUB CONTRACT EXPENSES IN THE ACCOUNT OF KMM CONSTRUCTION & M/S RANA INFRASTRUCTURE. 2 ITA NO. 273/NAG/2013 2. THE BRIEF FACTS OF THE CASE ARE S UNDER : THE ASSESSEE IN THIS CASE IS A CIVIL CONTRACTOR. REGARDING THE ADDITION OF ` 10,08,670/ IN RESPECT OF K.M.M. CONSTRUCTION IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD DEBITED THE SAID AMOUNT ON 31 03 2009 AS SUB CON TRACT EXPENSES PAID TO M/S K.M.M. CONSTRUCTIONS AND ON ENQUIRY THE SAID PARTY HAD CONFIRMED TO HAVE RECEIVED THE SAID AMOUNT AS ADVANCE PAYMENT WHICH WAS DEPOSITED IN THE BANK ACCOUNT ON 17 04 2009. IT WAS EXPLAINED BY THE ASSESSEE THAT HE WAS NOT CONCERN ED AS TO HOW THE OTHER PARTY HAD ACCOUNTED THE SAID AMOUNT IN ITS BOOKS OF ACCOUNT. THE ASSESSING OFFICER, HOWEVER, CAME TO THE CONCLUSION THAT THE SAID AGREEMENT WAS SIGNED ON 01 10 2009 AND THE CONTRACT PRACTICALLY COMMENCED IN A.Y. 2010 11 AND THAT, THEREFORE, THE SAID DEBIT OF ` 10,08,670/ WAS MADE ONLY WITH THE INTENTION TO REDUCING CURRENT INCOME AND HE, THEREFORE, ADDED TO THE INCOME OF THE ASSESSEE. 3. SIMILARLY IN THE CASE OF RAMA INFRASTRUCTURE THE ASSESSEE HAD DEBITED AN AMOUNT OF ` 32,80,64 9/ . THE ASSESSING OFFICER HAS NOTED THAT THE SAID PARTY HAD STATED THAT THE AMOUNT OF ` 32,80,649/ IS AN ADVANCE RECEIVED AND THAT THE WORK HAS NOT COMMENCED AND THE ASSESSING OFFICER, THEREFORE, ADDED THE SAID AMOUNT CONSIDERING IT TO BE NOT ALLOWABLE IN THE CURRENT YEAR. 4. UPON ASSESSEES APPEAL LEARNED CIT(APPEALS) NOTED THE ASSESSEES CONTENTION THAT THE WORK IN CONNECTION WITH WHICH THE PAYMENT TO SUB CON TRACTORS HAS BEEN DONE ALSO INVOLVE RECEIPT OF INCOME BY THE ASSESSEE IN RESPECT OF THE SAME CONTRACT. THE ASSESSEE EXPLAINED THAT SINCE THEY HAVE OFFERED THE SAME INCOME FOR TAXATION, THE PAYMENT RELATING TO THE SAME CONTRACT TO THE SUB 3 ITA NO. 273/NAG/2013 CONTRACTORS IS TO BE DISALLOWED ON ACCOUNT OF LACK OF COMMENCEMENT OF WORK , T HE CORRESPONDING INCOME SHOULD A LSO BE EXCLUDED. LEARNED CIT(APPEALS) HAS ALSO NOTED THAT THE ASSESSEE HAS ALSO FURNISHED THE WORKING WHEREIN THE CORRESPONDING CREDITS AND DEBITS IN RESPECT OF PAYMENT HAVE BEEN EXCLUDED FROM THE PROFIT & LOSS ACCOUNT AND ACCORDING TO THIS THERE WAS NO IM PACT ON THE PROFIT OF THE COMPANY. LEARNED CIT(APPEALS) HAS ALSO NOTED THAT THESE EVIDENCES WERE FURNISHED WERE REMANDED TO THE ASSESSING OFFICER AND THE ASSESSING OFFICER MERELY REITERATED THE FACTS STATED IN THE ASSESSMENT ORDER. CONSIDERING THE ASSESSE ES SUBMISSIONS, LEARNED CIT(APPEALS) DELETED THE ADDITION HOLDING AS UNDER : 6.5 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMLS SL O N S OF THE APPELLANT. I HAVE ALSO EXAMINED THE VARIOUS SUPPORTING EV IDE NCES FURNISHED. IN THE CASE OF KMM CONSTRUCTION, THE APPELLANT HAD ENTE RED INTO AN AGREEMENT FOR THE SUB - CONTRACTING THE WORK RECEIVED FROM THE E XE ~ ~ TIVE ENQINEER, CONSTRUCTION DIVISION (SPECIAL PROJECT NAGPUR) FOR THE W OR K OF CONSTRUCTION OF TECHNICAL SCHOOL BUILDING INCLUDING ELECTRIFI CATION AT PA RS H W INI, DISTRICT NAGPUR. THE TOTAL VALUE OF THE SAID CONTRACT WAS RS. 2 R 6S R 8 7 , 8 69/ - AND WAS TO BE COMPLETED BY THE APPELLANT OVE : R A PERIOD OF TIME. AS P E ~ THE CLAUSE 8 OF THE SAID AGREEMENT THE APPELLANT WAS REQUIRED TO PAY TH E E NTIRE AMOUNT OF BILL RECEIVED FROM THE EXECUTIVE ENQINEER, CONSTRUCTION D IVI SION (SPECIAL PROJECT NAGPUR) IN RESPECT OF WORK COVERED BY THE SAID AGREEM E NT TO THE SUB - CONTRACTOR WITHIN A REASONABLE TIME AFTER DEDUCTING TDS ET C. : THE R ' SAID CONTRACT WAS ALLOTTED TO THE APPELLANT ON 01 - 03 - 2009. CERTAIN A M OUNT / TOTALING TO RS. 14A7 R 80S/ - WAS RECEIVED BY THE APPELLANT DURING TH E YEAR UNDER CONSIDERATION: THE SAID AMOUNT HAS BEEN OFFERED BY THE APPE L L ANT IN I TS RETURN OF INCOME. AS PER THE TERMS OF THE AGREEMENT IT WAS INCUM B ENT OF THE APPELLANT TO MAKE CORRESPONDING PAYMENTS AS SUB CONTRACTO R T O KMM CONSTRUCTION AND THE SAID AMOUNT OF RS. 10,08,670/ - HAS BEEN P AL D B Y T HE APPELLANT ACCORD I NGLY AFTER MAKING THE REQU I SITE TDS . THE APPELLA NT HAS A L SO FU RNISHED CONFIRMATION FROM M/S KMM CONSTRUCTION TO TH I S EFFEC T . TH ERE I S MERIT IN THE SUBMISSION OF THE APPELLANT THAT IF THE SAID AMO UNT OF RS . 10,08,670/ - IS TO BE DISALLOWED THE CORRESPONDING RECEIPTS OF RS . 14,4 7, 805/ - SHOULD ALSO BE EXCLUDED FROM TH E CREDIT SIDE OF THE P&L A/C. TH I S W O ULD ON L Y GO TO DECREASE THE INCOME OF THE APPELLANT. IF AN INCOME IS BEING T A X E D, AL L EXPENSES CORRESPONDING TO THE SAME HAVE TO BE ALLOWED. CONSI D E R IN G THE R . ABOVE FACTS THE ADDITION OF RS. 10,08,670/ - IS DIRECTE D TO BE DELETE D . 4 ITA NO. 273/NAG/2013 6 . 7 THE FACTS IN THE CASE OF RAMA INF R AS TR UCTURE ARE IDE NT I C A L. T HE APPELLANT PARTICIPATED IN THE TENDER CALLED FOR BY THE CH I EF OFFICE R , ML ML CIPAL COUNSEL , CHANDRAPUR FOR CONSTRUCTION OF ADMINISTRATIVE BUL L C UN G AND COMMERCIAL COMPLEX IN MUNICIPAL COUNCIL, CHANDRAPUR AND THE WOR K O RDER WAS I SSUED TO THE APPELLANT ON 18 - 02 - 2009. THE TOTAL VALUE OF T HE C ON TRAC T WORK WAS RS. 6,22,27,511/ - WHICH WAS TO BE COMPLETED OVE R A P E RI O D O F TIME. THIS CONTRACT WAS SUB - CONTRACTED BY THE APPE L LAN T T O R ARNA INFRASTRUCTURE VIDE AGREEMENT DATED 25 - 03 - 2009. DURING THE YEA R U NDE R CONSIDERATION THE SAID CHIEF OFFICER, MUNICIPAL COUNCIL, CHANDRAPUR H AS PA I D > . AN AMOUNT OF RS. 35,74,216/ - TO THE APPELLANT WHICH HAS BEEN OFFE R E D T O TAX . '. IN THE RETURN OF INCOME. AS PER CLAUSE 8 OF THE AGREEMENT IT WAS I NC UM BENT ' UPON THE APPELLANT TO MAKE PAYMENT TO THE SUB CONTRACTOR AFTE R IT HAD RECEIVED PAYMENT FROM CHIEF OFFICER, MUNICIPAL COUNCIL, C H A N D R A PUR. CONSEQUENT TO THE SAME THE APPELLANT HAS PAID AN AMOUN T OF RS. 32,80,649/ - TO THE SUB CONTRACTOR AFTER MAK I NG THE DUE TDS. THE A PPE L LANT - , HAS ALSO FILED CONFIRMATION FROM THE RAMA INFRASTRUCTURE TO THE ABOV E ' EF F ECT. THUS ALL THE EVIDENCES HAVE BEEN FURN I SHED BY THE APPELLANT WH I C H CL E ARLY ESTABLISH THAT THERE IS NO INTENT ON THE PART OF THE APPELLANT TO DE P LT AN Y BOGUS OR INFLATED EXPENDITURE TO DECREASE HIS PROFIT . IN VIEW OF T H E S AME , THE ADDITION OF RS. 32,80,649/ - IS HEREBY DELETED . 5. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT IT IS UNDISPUTED THAT THE WORK IN CONNECTION WITH WHICH THE PAYMENT HAS BEEN DONE HAS NOT BEEN COMMENCED BY THE SUB CONTRACTOR. LEARNED CIT(APPEALS) HAS DELETED THE ADDITION ONLY ON THE PREMISE THAT THE ASSESSEE HAS A LSO RECEIVED INCOME IN CONNECTION WITH THE SAID CONTRACT AND HAS OFFERED THE SAME FOR TAXATION. THE INFERENCE OF THE LEARNED CIT(APPEALS) IS THAT THE INCOME IN CONNECTION WITH WHICH THE WORK HAS NOT COMMENCED HAS BEEN OFFERED FOR TAXATION , T HE EXPENSE IN C ONNECTION WITH THE SAME HAS TO BE ALLOWED WITH DISREGARD TO THE FACT THAT THE WORK IN RESPECT TO THE PAYMENT HAS NOT COMMENCED. WE FIND THAT THE ABOVE PROPOSITION IS NOT ENTIRELY CORRECT. THE ACCRUAL SYSTEM OF ACCOUNTING MANDATES THAT THE INCOME AND EXPENS ES SHOULD BE ACCOUNTED FOR IF THE SAME HAVE ACCRUED. A READING OF THE FINDINGS IN THE ASSESSMENT ORDER AND LEARNED CIT(APPEALS) ORDER SHOW THAT WORK 5 ITA NO. 273/NAG/2013 IN CONNECTION WITH WHICH THE EXPENSES HAVE BEEN DONE HAVE NOT COMMENCED. IT IS ALSO THE ASSESSEES SUBMIS SION THAT INCOME WITH RELATION TO THE SAME WORK HAS BEEN OFFERED FOR TAXATION. IT IS THE ASSESSING OFFICERS PLEA THAT IF THE PAYMENT TO SUB CONTRACTORS IS TO BE DISALLOWED THE INCOME IN RELATION TO THIS WHICH HAS BEEN OFFERED FOR TAXATION SHOULD ALSO BE E XCLUDED. THE SUBMISSION OF THE ASSESSEE IN THIS REGARD THAT BOTH THE UNACCRUED INCOME AND UNACCRUED EXPENSES SHOULD BE EXCLUDED IS COGENT. HOWEVER, WE ALSO NOTE THAT THE ASSESSEE HAS ALSO SUBMITTED A WORKING BEFORE THE LEARNED CIT(APPEALS) THAT IF THE CONC ERNED EXPENSES AND INCOME ARE EXCLUDED, THERE IS NO IMPACT IN PROFITABILITY. THIS IMPLIES THAT IT IS THE ASSESSEES CONTENTION THAT IF AS PER THE CORRECT PROCEDURE THE CONCERNED INCOME AND EXPENSES BOTH ARE EXCLUDED, THE PROFIT SHOWN WOULD BE THE SAME WHI CH HAS BEEN REFLECTED BY THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT. IN OTHER WORDS, IT MEANS THAT THE IMPACT WILL BE REVENUE NEUTRAL. IN THIS REGARD WE FIND THAT ANALOGICAL ISSUE WAS CONSIDERED BY THE HONBLE APEX COURT IN THE CASE OF CIT V/S. EXCEL IND USTRIES LTD. 358 ITR 295. RATIO FROM THE SAID DECISION AS EMANATING IS AS UNDER : I) INCOME AS ACCRUED MUST BE CONSIDERED FROM A REALISTIC AND PRACTICAL ANGLE. II) DEPARTMENT HAS ACCEPTED THE VERDICT IN SOME YEAR. IT CANNOT BE CHALLENGED THE VERDICT IN OTHER YEA RS. III) DISPUTES AS TO THE YEAR OF TAXABILITY WITH NO/MINOR TAX EFFECT SHOULD NOT BE RAISED BY THE DEPARTMENT. 6. NOW WE CONSIDER THE ASSESSEES PLEA THAT THERE IS NO IMPACT ON PROFITABILITY IF THE WORKING OF THE ASSESSEE EXCLUDED BOTH THE INCOME AND EXPENDI TURE IS CONSIDERED. W E FIND IT FALL S UNDER THE KEN OF THE EXPOSITION OF THE HONBLE APEX COURT AS ABOVE. HOWEVER, WE FIND THAT THOUGH THE ASSESSEE HAD SUBMITTED A WORKING, THE SAME HAS NOT BEEN EXAMINED AS TO ITS VERACITY BY THE ASSESSING OFFICER OR THE L EARNED CIT(APPEALS). HENCE IN THE INTEREST OF JUSTICE, WE REMIT THIS 6 ITA NO. 273/NAG/2013 ISSUE TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ASSESSEES CLAIM THAT IF THE CONCERNED INCOME AND EXPENSES ARE EXCLUDED THERE IS NO IMPACT ON PROFITABILITY. IF THE ASSESSEES CLAIM IS FOUND NOT CORRECT, IN OUR CONSIDERED OPINION BOTH THE UNACCRUED INCOME AS WELL AS UNACCRUED EXPENSES HAVE TO BE EXCLUDED FROM THE COMPUTATION OF PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ISSUE IN THE LIGHT OF OUR FINDING AS ABOVE. NEEDLESS TO ADD, THE ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD.. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF SEPT., 2015. SD/ SD/ (MUKUL K. SHRAWAT) ( SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER. NAGPUR, DATED: 24 TH AUGUST, 2015. COPY OF ORDER FORWARDED TO : 1. THE ASSESSEE. 2. REVENUE. 3. THE CIT(A) 4. THE CIT, NAGPUR. 5. THE D.R., ITAT, NAGPUR. 6. GUARD FILE. TRUE COPY. BY ORDER 7 ITA NO. 273/NAG/2013 WAKODE ASSISTANT REGISTRAR, ITAT, NAGPUR .