ACIT-CIRCLE-6, Nagpur V. SHRI VIVEK VINAYAK VAIDYA, Nagpur

ITA 275/NAG/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1707 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2015
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 15-05-2014
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO. 275/NAG./2014 ( ASSESSMENT YEAR : 200910 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE6, AAYAKAR BHAVAN NAGPUR 440 001 APPELLANT V/S SHRI VIVEK VINAYAK VAIDYA 46B, KRUSHNA KRUPA, GREAT NAG ROAD IMAMBADA, NAGPUR 440 003 PAN AAKPV3808M RESPONDENT REVENUE BY : SHRI NARENDRA KANE ASSESSEE BY : SHRI MANOJ MORYANI DATE OF HEARING 31.07.2015 DATE OF ORDER 28.08.2015 O R D E R PER SHAMIM YAHYA, A.M. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 28 TH FEBRUARY 2014, PASSED BY THE LEARNED COMMISSIONER (APPEALS)-II, NAGPUR, FOR THE ASSESSMEN T YEAR 200910, ON THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITIONS OF ` 9,87,471, BEING 50% OUT OF ADMINISTRATIVE EXPENSES CLAIMED AN D ` 20,26,139, BEING 50% OUT OF INTEREST AND FINANCIAL CHARGES SHRI VIVEK VINAYAK VAIDYA 2 CLAIMED, WITHOUT APPRECIATING THE FACT THAT THE SAM E WERE MADE IN THE BACKGROUND THAT THE ASSESSEE HAS RETRACTED F ROM DISCLOSURE OF ADDITIONAL INCOME OF ` 60 LAKH MADE UPON SURVEY ACTION UNDER SECTION 133A(1). 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION O F ` 5,35,778, BEING UNEXPLAINED CLAIM OF LOSS FROM CONSTRUCTION A CTIVITY, OUT OF THE TOTAL CLAIM OF LOSS AMOUNTING TO ` 6,47,972, WITHOUT APPRECIATING THE FACT THAT THE SAME WERE MADE IN TH E BACKGROUND THAT THE ASSESSEE HAS RETRACTED FROM DISCLOSURE OF ADDITIONAL INCOME OF ` 60 LAKH MADE UPON SURVEY ACTION UNDER SECTION 133A(1). 2. FACTS IN BRIEF : THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN COOLER, STEEL, FURNITURE ITEMS AND CIVIL CONSTRUCTION ACTIVITIES UNDER THE NAME AND STYLE OF M/S. VAIDYA INDUSTRIES, NAGPUR. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD CLAIMED ADMINISTRATIVE EXPENSES AMOUNTING TO ` 19,74,942, AND INTEREST AND FINANCIAL CHARGES AT ` 40,52,278. IT WAS ALSO NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD NOT MAINTAINED SEPARATE BOOKS OF ACCOUNT FOR MANUFACTURING AND FOR CONSTRUCTION ACTIVIT IES AND IT WAS NOT ASCERTAINABLE AS TO WHAT EXTENT TO THESE EXPENSES R ELATED TO THE CONSTRUCTION ACTIVITY OF THE ASSESSEE. THE ASSESSING OFFICER FURTHER NOTED THAT THE EXPENSES INCURRED BY THE APPELLANT IN RES PECT OF LAND PURCHASED AND OTHER ALLIED ACTIVITIES WAS REQUIRED TO BE CAPITALIZED SINCE THE BUSINESS OF THE SAID LAND WAS YET TO BE STARTE D BY THE ASSESSEE. HE NOTED THAT DURING THE YEAR NO SALE HAS BE EN REGISTERED UNDER THE SAID SCHEME AND THE APPELLANT HAD CARRIED F ORWARD THE SHRI VIVEK VINAYAK VAIDYA 3 DIRECT COST OF CONSTRUCTION AS WORK IN PROGRESS. THE A SSESSING OFFICER WAS OF THE VIEW THAT EXPENSES RELATED TO CONSTRUCTION AC TIVITY SHOULD HAVE BEEN CAPITALIZED AND INCLUDED IN THE WORK IN PR OGRESS. SINCE THE APPELLANT HAS BEEN UNABLE TO GIVE SEPARATE DETAILS OF EXPENSES IN RESPECT OF CONSTRUCTION ACTIVITIES, HE DISALLOWED 50% OF ADMINISTRATIVE EXPENSES AND 50% OF THE FINANCIAL CHARGES WHICH RES ULTED IN ADDITION OF ` 9,87,471 AND ` 20,26,139 RESPECTIVELY. IT WAS FURTHER NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAD NOT MADE T DS IN RESPECT OF ONE PAYMENT OF ` 61,650 PAID FOR THE PURPOSE OF DIGGING BORE WELL AND HE DISALLOWED THE SAME IN VIEW OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 3. AGAINST THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE LEARNED CIT(A). AS REGARDS THE DISALLOWANCE OF INTER EST EXPENDITURE, THE LEARNED CIT(A) OBSERVED AS UNDER: 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE WRITTEN SUBMISSIONS OF THE APPELLANT. I FIND SUBSTA NTIAL FORCE IN THE SUBMISSION MADE AND THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT. IT IS EVIDENT FROM THE SUBMI SSION OF THE APPELLANT AND ALSO FROM THE PROFIT & LOSS ACCOUNT A ND BALANCE SHEET SUBMITTED THAT THE APPELLANT HAS BEEN FOLLOWI NG PERCENTAGE OF PROFIT METHOD TO COMPUTE ITS TAXABLE INCOME. A C ERTAIN PERCENTAGE OF THE PROJECT IS COMPLETED EVERY YEAR A ND CORRESPONDING PROFIT HAS BEEN OFFERED FOR TAX BY TH E APPELLANT FROM ITS CONSTRUCTION ACTIVITIES OVER THE YEARS. ON PERUSAL OF THE PROFIT & LOSS ACCOUNT OVER THE YEARS IT IS EVIDENT THAT CERTAIN CONSTRUCTION RECEIPTS HAVE BEEN SHOWN EVERY YEAR AN D CERTAIN CONSTRUCTION EXPENSES THAT HAVE BEEN DEBITED CORRES PONDING TO THE PROJECT ACTIVITIES. THIS PERCENTAGE OF COMPLETI ON METHOD OF ACCOUNTING HAS BEEN CONSISTENTLY FOLLOWED BY THE AP PELLANT AND ACCEPTED BY THE DEPARTMENT. I HAVE PERUSED THE ASSE SSMENT ORDER UNDER SECTION 143(3) FOR A.Y. 201011 WHEREIN ALSO SIMILAR SHRI VIVEK VINAYAK VAIDYA 4 METHOD OF ACCOUNTING HAS BEEN FOLLOWED AND THE SAME HAS BEEN ACCEPTED WITHOUT MAKING ANY DISALLOWANCE OF THE NAT URE THAT HAS BEEN MADE IN THE YEAR UNDER CONSIDERATION. 7.1 IT IS ALSO TO BE NOTED THAT INTEREST EXPENSES H AVE BEEN INCURRED BY THE APPELLANT FOR, AMONG OTHER THINGS, PROCURING LAND AND FOR CONSTRUCTION ACTIVITIES. THE LAND AND CONST RUCTED / SEMI CONSTRUCTED PROPERTY IS CLASSIFIED AS WORK IN PROGR ESS AND THIS CONSTITUTES STOCK IN TRADE OF THE APPELLANT. ANY IN TEREST EXPENDITURE INCURRED IN RELATION TO BORROWING FOR S UCH PURPOSES WOULD HAVE TO BE ALLOWED AS PER THE PROVISIONS OF S ECTION 36(1)(III). ALSO, AS IS EVIDENT FROM THE SUBMISSION OF THE APPELLANT, THE FACTS OF WALL STREET CONSTRUCTION LT D. V/S JCIT (SUPRA) CANNOT BE APPLIED TO THE CASE OF THE APPELL ANT. SINCE THE APPELLANT IS FOLLOWING THE PERCENTAGE OF PROFIT MET HOD, THE ALLOWABILITY OF EXPENSES WOULD BE SQUARELY COVERED BY THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE O F CIT V/S LOKHANDWALA CONSTRUCTION INDUSTRIES LTD., 260 ITR 5 79 (BOM.). THE LEARNED CIT(A) FURTHER REFERRED TO THE DECISION O F THE HON'BLE SUPREME COURT IN DCIT V/S CORE HEALTHCARE LTD., [200 8] 298 ITR 194 (SC) AND THE COORDINATE BENCH DECISION OF THE TRIB UNAL, MUMBAI BENCH, IN JCIT V/S K. RAHEJA PVT. LTD., 290 ITR 69 ( MUM.). THE LEARNED CIT(A) FURTHER CONCLUDED AS UNDER: 8. IT IS EVIDENT FROM THE ABOVE JUDICIAL PRONOUNCEM ENTS THAT A CONSISTENT VIEW HAS BEEN TAKEN THAT WHEN AN APPELLA NT CLAIMS DEDUCTION OF INTEREST PAID ON BORROWED CAPITAL, IT HAS TO BE EXAMINED WHETHER THE SAID BORROWINGS IS FOR THE BUS INESS OF THE APPELLANT. EVIDENTLY THE BORROWINGS IN THE CASE OF THE APPELLANT ARE FOR THE PURPOSES OF HIS BUSINESS. AS STATED ABO VE IT HAS BEEN HELD THAT FINANCIAL COST IN THE CASE OF BUILDER HAS TO BE ALLOWED AS DEDUCTION EVEN THOUGH CORRESPONDING INCOME MAY BE R ECOGNIZED LATER. THE SAME LOGIC WOULD APPLY TO THE ADMINISTRA TIVE EXPENDITURE, AS THE SAME IS ADMITTEDLY REVENUE EXPE NSES AND HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE AP PELLANT. IN VIEW OF THE ABOVE FACTS THE ADMINISTRATIVE EXPENDIT URE AMOUNTING TO ` 9,87,471 AND INTEREST EXPENDITURE OF ` 20,26,139 ARE HELD TO BE ALLOWABLE EXPENDITURE AS THEY HAVE INCURRED BY T HE APPELLANT FOR PURPOSE OF BUSINESS. SHRI VIVEK VINAYAK VAIDYA 5 4. WITH REGARD TO THE DISALLOWANCE OF ` 5,35,778, THE LEARNED CIT(A) CONSIDERED THE ASSESSEES SUBMISSION AND DELETED THE SAME BY HOLDING AS UNDER: 9.1 I HAVE CONSIDERED THE FACTS IF THE CASE AND THE SUBMISSIONS MADE. THE LD. A.O. HAS ALLOWED THE SAID EXPENSES TO BE INCLUDED IN THE WIP TO BE ALLOWED AS EXPENDITURE A SOME FURT HER DATE. IN SUCH CIRCUMSTANCES, IT IS EVIDENT THAT THE SAID EXP ENDITURE HAS BEEN HELD TO BE REVENUE IN NATURE AND IS OTHERWISE ALLOWABLE. FOR THE REASONS DISCUSSED IN THE FOREGOING PARAGRAPHS, THE SAID EXPENSES ARE ALSO HELD TO BE ALLOWABLE AND CONSEQUE NTLY THE ADDITION MADE OF ` 535778 IS HEREBY DELETED. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEAL B EFORE US. 5. ON A PERUSAL OF THE GROUNDS OF APPEAL RAISED BY THE REVENUE SHOWS THAT THE SAME HAS NO RELATIONSHIP WHATSOEVER WITH THE GROUND ON WHICH THE ADDITION WAS MADE BY THE ASSESSING OFFI CER. THE BASIS ON WHICH THE REVENUE HAS URGED THAT THE ADDITIONS MADE SHOULD BE SUSTAINED IS THE BACKGROUND THAT THE ASSESSEE HAS RETR ACTED FROM THE DISCLOSURE OF ADDITION INCOME OF ` 60 LAKH MADE UPON SURVEY ACTION UNDER SECTION 133A OF THE ACT. WE FIND THAT, TO APPRECI ATE THE GROUNDS OF APPEAL RAISED BY THE REVENUE, WE MAY REFER TO PAR A3 OF THE ASSESSMENT ORDER AS UNDER: 3. IN THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE HAS SHOWN INCOME FROM BUSINESS AT ` 8,49,150. IN THIS CASE, SURVEY UNDER SECTION 133A WAS CONDUCTED ON 17.02.2009. THE ASSES SEE HAS DECLARED AN INCOME OF ` 60,00,000 OVER AND ABOVE THE REGULAR INCOME. WHILE DECLARING THIS ADDITIONAL INCOME THE ASSESSEE HAS ALSO ADMITTED TO THE FACT THAT HE WILL NOT CLAIM AN Y EXPENDITURE AGAINST THE SAID INCOME. HOWEVER, FROM THE P&L ACCO UNT, IT IS SEEN THAT THE ASSESSEE HAS SHOWN MISCELLANEOUS INCO ME DECLARED SHRI VIVEK VINAYAK VAIDYA 6 AT ` 60,00,000 AND AGAINST IT VARIOUS REGULAR EXPENSES HAS BEEN CLAIMED. SINCE THE ASSESSEE HAS DECLARED THE ADDITI ONAL INCOME OF ` 60,00,000 OVER AND ABOVE HIS REGULAR INCOME THE SA ME IS CONSIDERED AS INCOME FROM OTHER SOURCES FOR THE PUR POSE OF COMPUTATION OF INCOME. 6. WE FIND THAT THE ABOVE ADDITION OF ` 60,00,000, WAS SEPARATELY MADE BY THE ASSESSING OFFICER AND IT HAD NO RELATION SHIP WITH THE ASSESSING OFFICERS OBSERVATIONS AS THE BASIS OF ADD ITION FOR THE AD0HOC DISALLOWANCE OF INTEREST AND FINANCE CHARGES AND AD MINISTRATIVE EXPENSES BEING THE OTHER ADDITIONL MADE BY THE ASSESS ING OFFICER. HENCE, IN OUR CONSIDERED OPINION, THE GROUNDS OF APP EAL RAISED BY THE REVENUE ARE MISCONCEIVED AND ARE LIABLE TO BE REJEC TED ON THAT ACCOUNT ITSELF. 7. NEVERTHELESS, WE HAVE CONSIDERED ON MERITS THE BASIS O F ADDITION MADE BY THE ASSESSING OFFICER AND THE BASIS OF DELE TION OF ADDITION MADE BY THE LEARNED CIT(A). WE FIND THAT THE LEARNED CI T(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS BEEN FOLLOWING THE SYST EM OF ACCOUNTING I.E., PERCENTAGE OF PROFIT METHOD TO COMPU TE ITS TAXABLE INCOME. THIS HAS BEEN FOLLOWED IN THE PAST. THE EXP ENDITURE DISALLOWED BY THE ASSESSING OFFICER ON ACCOUNT OF FINANCE CHARG E AND ADMINISTRATIVE EXPENDITURE HAVE BEEN DISALLOWED BY THE ASSESSING OFFICER ON AN ADHOC BASIS. IT IS NOT THE CASE THAT THESE EXPENDITURES HAVE NOT BEEN INCURRED OR THEY ARE NOT IN RELATION TO THE BUSINESS OF THE ASSESSEE. IN SUCH CIRCUMSTANCES, IN OUR CONSIDER ED OPINION, THE SHRI VIVEK VINAYAK VAIDYA 7 LEARNED CIT(A) HAS PASSED A REASONABLE ORDER AND IT DOES NOT REQUIRE ANY INTERFERENCE ON OUR PART ON MERITS ALSO. THE GROU NDS OF APPEAL RAISED BY THE REVENUE ARE DISMISSED. 8. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.08.2015 SD/ - MUKUL K. SHRAWAT JUDICIAL MEMBER SD/ - SHAMIM YAHYA ACCOUNTANT MEMBER NAGPUR, DATED: 28.08.2015 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, NAGPUR CITY CONCERNED; (5) THE DR, ITAT, NAGPUR; (6) GUARD FILE. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY A SSISTANT REGISTRAR ITAT, NAGPUR