Dwarkes Infrastructure Pvt. Ltd., Ahmedabad V. The Dy. Commissioner of Income Tax, Circle-1(1)(2), Ahmedabad

ITA 2813/AHD/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5257 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 26-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: T P HEMANI
• Keywords: Depreciation; Additional depreciation; Capital expenditure
• Section: 37(1); 131; 37

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA NO.2813/AHD/2016 / ASSTT. YEAR: 2013-2014 DWARKESH INFRASTRUCTURE P.LTD. S/1, NEELKANTH APARTMENTS B/H. VISHRAMNAGAR MEMNAGAR, AHMEDABAD. PAN : AACCD 0020 C VS. DCIT, PANJRAPOLE AHMEDABAD. ( APPLICANT ) ( RESPONENT ) ASSESSEE BY : SHRI T.P.HEMANI, AR REVENUE BY : SHRI LALIT P.JAIN, SR.DR / DATE OF HEARING : 27/09/2018 / DATE OF PRONOUNCEMENT: 23 /10/2018 +,/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER: ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST O RDER OF LD.CIT(A)-1, AHMEDABAD DATED 30.8.2016 PASSED FOR THE ASSTT.YEAR 2013-14. 2. IN THE FIRST GROUND OF APPEAL, THE ASSESSEE HAS PLEADED THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE OF R S.1,04,98,580/- WHICH HAS BEEN DISALLOWED BY THE AO OUT OF LABOUR EXPENDITURE . 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN THE BUSINESS OF ROAD-CONSTRUCTION. IT H AS FILED ITS RETURN OF INCOME ON 28.9.2013 ELECTRONICALLY DECLARING TOTAL INCOME AT RS.72,09,250/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSE SSMENT AND NOTICE UNDER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSES SEE. ON SCRUTINY OF THE ITA NO.2813/AHD/2016 2 ACCOUNTS IT REVEALED TO THE AO THAT THE ASSESSEE HA S SHOWN TOTAL RECEIPT OF RS.24,74,51,027/- ON WHICH NET PROFIT OF RS.71,670, 948/- HAS BEEN DECLARED. IT IS PERTINENT TO OBSERVE THAT THE ASSESSEE IS USE D TO GET CONTRACTS FROM AUDA AND AMC ETC. IT WAS NOTICED BY THE AO THAT THE ASS ESSEE HAS DEBITED AN AMOUNT OF RS.6,77,69,053/- TOWARDS LABOUR CHARGES W HICH INCLUDED THE AMOUNT OF RS.26,57,765/- AND RS.70,90,815/- PAYABLE TO B.A.PAVAGADH AND M.H. SHAH LABOUR CONTRACTORS RESPECTIVELY. IN ORDE R TO EXAMINE GENUINENESS OF THE EXPENDITURE, THE LD.AO ISSUED NOTICE UNDER S ECTION 131 OF THE ACT AND RECORDED STATEMENT OF THE LABOUR CONTRACTORS. HE C ONFRONTED THE ASSESSEE WITH THE OUTCOME OF THESE STATEMENTS. Q UA QUERY OF THE AO, IT WAS CONTAINED THAT SOMEHOW BUSINESS IS BEING CARRIED OUT IN THE NAME O F WIFE BY HER HUSBAND. HENCE WITH REGARD TO THE DETAILS OF BUSINESS, ITS N ATURE, DEALING WITH OTHERS, MUST BE IN THE KNOWLEDGE OF THE HUSBAND WHO WERE AC TUALLY CONDUCTING BUSINESS. THE ASSESSEE HAS SUBMITTED COMPLETE DETA ILS OF SUCH LABOUR EXPENDITURE. IT HAS SUBMITTED LEDGER ACCOUNT, LABO UR BILLS & CONTRACTS, BANK STATEMENTS ETC. SHOWING PAYMENT THROUGH BANK CHANNE L, ACKNOWLEDGEMENT OF INCOME TAX RETURNS OF THE RECIPIENTS WHO HAVE OFFER ED THIS LABOUR CHARGES AS THEIR INCOME. THE ASSESSEE HAS SUBMITTED TDS DETAI LS. SOMEHOW, THE LD.AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSES SEE, SIMPLY FOR THE REASONS THAT THE LADY-CONTRACTOR COULD NOT EXPLAIN THE NATU RE OF WORK DONE BY THEM OR ANY OUTSTANDING AMOUNTS, IF ANY TOWARDS THE ASSESSE E. THE AO TOOK THESE CIRCUMSTANCES AS IF THE ASSESSEE HAS CREATED DEMI -CONTRACTORS AND INFLATED THE EXPENDITURE. HE DISALLOWED LABOUR EXPENDITURE OF R S.26,57,765/- AND RS.70,90,815/- PAYABLE TO B.A.PAVAGADH AND M.H. SHA H LABOUR CONTRACTORS RESPECTIVELY. APPEAL TO THE LD.CIT(A) DID NOT BRIN G ANY RELIEF TO THE ASSESSEE. 4. THE LD.COUNSEL FOR THE ASSESSEE WHILE IMPUGNING ORDERS OF THE LD.REVENUE AUTHORITIES CONTENDED THAT THE ASSESSEE HAS ESTABLISHED DIRECT LINK BETWEEN THE WORK OBTAINED FROM GOVERNMENT INSTRUMEN TALITIES I.E. AUDA AND ITA NO.2813/AHD/2016 3 AMC, AND HOW THESE WORKS HAVE BEEN GOT PERFORMED BY IT WITH THE HELP OF LABOUR CONTRACTORS. COMPLETE LEDGER DETAILS EXHIBI TING THE NATURE OF CONTRACT OBTAINED FROM THESE AGENCIES, AND ASSIGNMENT TO THE LABOUR CONTRACTOR HAS BEEN FILED. THE LD.COUNSEL FOR THE ASSESSEE TOOK U S THROUGH PAGE NOS.42 TO 47 OF THE PAPER BOOK, WHERE THE DETAILS OF BILLS, NATU RE OF WORK, RATES AND HOW THESE WORKS HAVE BEEN CARRIED OUT ARE BEING PLACED ON RECORD. HE THEREAFTER MADE REFERENCE TO THE BANK STATEMENT VIDE WHICH THE PAYMENTS HAVE BEEN MADE. HE POINTED OUT THAT PAYMENTS TO LABOUR CONTR ACTOR IS BEING MADE THROUGH BANKING CHANNELS. IT IS BEING RECEIVED BY THE ASSESSEE FROM THE CONTRACTEES I.E. AUDA AND AMC, A COMPLETE RE-CONCIL IATION IS AVAILABLE WITH THE ASSESSEE. HE THEREAFTER MADE REFERENCE TO THE LEDGER ACCOUNT CONTAINING ALL THESE DETAILS, TDS DETAILS. HE FURTHER CONTEND ED THAT THESE PARTIES ARE ASSESSED TO TAX, AND THEIR RESPECTIVE INCOME ARE NO T DISTURBED OR ALTERED BY THE DEPARTMENT. THEY HAVE INCLUDED THESE RECEIPTS IN T HEIR INCOME TAX RETURN. HE POINTED OUT THAT GP IN THIS YEAR IS 9.66% WHICH IS BETTER THAN THE LAST YEAR I.E. 8.09% . THIS 8.09% WAS ACCEPTED BY THE DEPARTMENT IN SCRUTINY ASSESSMENT UNDER SECTION 143(3). IF THE DISALLOWANCE IS INCLU DED THEN GP WILL BE INCREASE TO 13.90%. THE NET PROFIT WILL COME AROUND 6.03% W HICH IS NOT POSSIBLE TO ACHIEVE IN THIS LINE OF BUSINESS. THE NET PROFIT I N EARLIER YEAR WAS 0.99% AND 0.74% WHICH HAS BEEN ACCEPTED BY THE DEPARTMENT IN SCRUTINY ASSESSMENTS. ON THE STRENGTH OF THIS COMPARATIVE ANALYSIS HE POI NTED OUT THAT THE REASONS ASSIGNED BY THE LD.REVENUE AUTHORITIES ARE ONLY PER IPHERAL AND NOT BASED ON SOUND EVIDENCE. THE LD.COUNSEL FOR THE ASSESSEE PR AYED THAT DISALLOWANCE BE DELETED. 5. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORD ERS OF THE REVENUE AUTHORITIES. HE POINTED OUT THAT BOTH LABOUR CONTR ACTORS APPEARED BEFORE THE AO AND IN THEIR STATEMENTS THEY FAILED TO DISCLOSE NATURE OF WORK PERFORMED ON BEHALF OF THE ASSESSEE. ITA NO.2813/AHD/2016 4 6. WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS AND GO NE THROUGH THE RECORD CAREFULLY. IT IS PERTINENT TO OBSERVE THAT IN ORDER TO CLAIM EXPENDITURE UNDER SECTION 37(1) OF THE ACT, THE ASSESSEE IS REQ UIRED TO FULFILL CERTAIN CONDITIONS VIZ. (A) THERE MUST BE AN EXPENDITURE, ( B) SUCH EXPENDITURE MUST NOT BE OF NATURE DESCRIBED IN SECTIONS 30 TO 36, (C ) EXPENDITURE MUST NOT BE IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPEN DITURE OF THE ASSESSEE, AND (D) EXPENDITURE MUST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OR PROFESSION. EXPRESSION WHO LLY EMPLOYED IN SECTION 37 RELATES TO QUANTIFICATION OF THE EXPENDITURE, WH ILE EXPRESSION EXCLUSIVELY REFERS TO THE MOTIVE, OBJECTS AND PURPOSE OF THE EX PENDITURE. IF WE MAKE AN ANALYSIS OF THE RECORD, THEN IT WOULD REVEAL THAT T HE ASSESSEE HAS DEMONSTRATED THE INCURRENCE OF THE ABOVE EXPENDITURE FOR THE PUR POSE OF BUSINESS. IT HAS SUBMITTED CONTRACT DETAILS FROM AUDA OR AMC HOW THE SE CONTRACTS COMPLETED BY IT WITH HELP OF LABOUR CONTRACTOR. IT HAS SUBMITTED THAT LABOUR BILLS AND CONTRACT INDICATING THE WORKING ASSIGNED BY IT TO DIFFERENT LABOUR CONTRACTORS. IT HAS SUBMITTED BANK STATEMENT SHOWI NG PAYMENT THROUGH BANKING CHANNEL TO LABOUR CONTRACTORS. IT HAS PROD UCED INCOME TAX RETURN OF THE CONTRACTOR SHOWING INCOME OF THESE RECEIPTS REC EIVED FROM THE ASSESSEE. IT HAS PRODUCED TDS DETAILS. IT HAS PRODUCED COMPARATI VE ANALYSIS OF THE GP AS WELL AS NP OF EARLIER YEARS VIS--VIS THIS YEAR. I T HAS ALSO DEMONSTRATED HOW PROFIT WILL ABNORMALLY RISE IF THESE DISALLOWANCES ARE BEING INCLUDED IN THE INCOME OF THE ASSESSEE. THUS, COMPLETE CIRCUMSTANT IAL EVIDENCE PRODUCED BY THE ASSESSEE WOULD INDICATE THAT IT HAS INCURRED TH ESE EXPENDITURE FOR COMPLETING THE WORK. THE ONLY CIRCUMSTANCES WITH T HE AO IS THAT PROPRIETORSHIP CONCERN OF THE LABOUR CONTRACTORS WE RE IN THE NAMES OF LADIES AND ACTUAL WORK WERE BEING LOOKED AFTER BY THEIR HU SBANDS, HENCE, THEY ARE NOT HAVING KNOWLEDGE OF THEIR BUSINESS. TO OUR MIN D THESE CIRCUMSTANCES, OUGHT NOT TO BE LOOKED INTO IN ISOLATION FOR DISBEL IEVING THE CLAIM OF THE ITA NO.2813/AHD/2016 5 ASSESSEE. RECEIPTS HAVE ALREADY SUFFERED TAX IN TH E HANDS OF THE RECIPIENTS. WORK HAS BEEN DONE. THERE ARE NO DOUBT WITH REGARD TO THE CONTRACTS OBTAINED FROM AUDA OR AMC AND COMPLETION OF WORK. THUS, ACTUAL EXPENDITURE MUST HAVE BEEN INCURRED ON SUCH WORK. CAN THE CLAIM OF THE ASSESSEE BE BELIED SIMPLY FOR THE REASONS THAT SOME OF THE LABOUR CONTRACTORS WERE NOT HAVING COMPLETE KNOWLEDGE OF THE CONTRACT WHICH IS BEING LOOKED AFTER BY THEIR HUSBAND ? TO OUR MIND, THE LD.REVEN UE AUTHORITIES HAVE FAILED TO APPRECIATE ACTUAL CIRCUMSTANCES OF THE DISPUTE. CONSIDERING THE ABOVE DETAILS, WE ALLOW THIS GROUND OF APPEAL AND DELETE THE IMPUGNED DISALLOWANCE. 7. IN THE NEXT GROUND, GRIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF DEPRECIATIO N AMOUNTING TO RS.5,35,000/-. 8. THE ASSESSEE HAS CLAIMED DEPRECATION ON PLANT & MACHINERY. ACCORDING TO THE AO, THE ASSESSEE HAS MADE CLAIM FR OM ADDITIONAL DEPRECIATION WHICH IS NOT PERMISSIBLE TO THE ASSESS EE. ON APPEAL, THE LD.CIT(A) HAS UPHELD THE DISALLOWANCE BY OBSERVING AS UNDER: 4.3 I HAVE CAREFULLY CONSIDERED THE ASSESSMENT ORD ER AND SUBMISSION FILED BY APPELLANT. THE ASSESSING OFFICER HAS OBSER VED THAT APPELLANT HAS CLAIMED ADDITIONAL DEPRECIATION ON ADDITIONS MA DE TO PLANT & MACHINERY USED FOR THE PURPOSE OF CONSTRUCTION OF R OAD. THE APPELLANT CLAIMED ADDITIONAL DEPRECIATION ON PLANT & MAHCINER Y USED FOR THE PURPOSE OF CONSTRUCTION OF ROAD. THE ASSESSEE IS NO T ENTILED FOR ADDITIONAL DEPRECIATION ON PLANT & MAHCINERY WHICH IS COVERED U/S. 32(1)(IIA) OF THE ACT. MOREOVER, THE ADDITIONAL DEP RECIATION IS ALLOWABLE ON THE NEW MACHINERY USED FOR THE PURPOSE OF MANUFACTURING. SECTION 2(29BA) OF THE I.T. ACT, 196 1 DEFINES MANUFACTURE, THE FACTS REMAIN THAT THE ASSESSEE HAS USED THE MACHINERY FOR THE PURPOSE OF CONSTRUCTION WORK AND THE CONSTR UCTION WORK CANNOT BE SAID TO BE A MANUFACTUIRNG ACTIVITY WITHIN THE M EANING OF SECTION 2(29BA) OF THE ACT. AS SUCH, THE CLAIM OF THE ASSES SEE FOR ADDITIONAL DEPRECIATION OF RS. 5,35,0007- ON PLAND & MAHCINERY IS DISALLOWED AS THE ASSESSEE IS NOT CARRYING ON ANY MANUFACTURING A CTIVITY. ITA NO.2813/AHD/2016 6 ON THE OTHER HAND, APPELLANT HAS ARGUED THAT DCIT E RRED IN DISALLOWING THE CLAIM HOLDING THAT ASSESSEE IS NOT CARRYING ON MANUFACTURING ACTIVITY WITHIN THE MEANING OF SECTIO N 32(1) (IIA) R. W. S 2(29 BA) OF THE ACT. 4.4. ON CAREFUL CONSIDERATION OF ENTIRE FACTS, I T IS OBSERVED THAT PROVISIONS OF SECTION 32(1)(IIA) GRANTING ADDITIONA L DEPRECIATION READS AS UNDER: '32(1)(IIA)..... IN THE CASE OF ANY NEW MACHINERY O R PLANT (OTHER THAN SHIPS AND AIRCRAFT), WHICH HAS BEEN ACQUIRED A ND INSTALLED AFTER THE 31ST DAY OF MARCH, 2005, BY AN ASSESSEE E NGAGED IN THE BUSINESS OF MANUFACTURE OR PRODUCTION OF ANY ARTICL E OR THING OR IN THE BUSINESS OF GENERATION OR GENERATION AND DIS TRIBUTION OF POWER], A FURTHER SUM EQUAL TO TWENTY PER CENT OF T HE ACTUAL COST OF SUCH MACHINERY OR PLANT SHALL BE ALLOWED AS DEDU CTION UNDER CLAUSE (II): PROVIDED THAT NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF (A) ANY MACHINERY OR PLANT WHICH, BEFORE ITS INSTAL LATION BY THE ASSESSEE, WAS USED EITHER WITHIN OR OUTSIDE INDIA B Y ANY OTHER PERSON; OR (B) ANY MACHINERY OR PLANT INSTALLED IN ANY OFFICE PREMISES OR ANY RESIDENTIAL ACCOMMODATION, INCLUDING ACCOMMODAT ION IN THE NATURE OF A GUEST-HOUSE; OR (C) ANY OFFICE APPLIANCES OR ROAD TRANSPORT VEHICLE S; OR (D) ANY MACHINERY OR PLANT, THE WHOLE OF THE ACTUAL COST OF WHICH IS ALLOWED AS A DEDUCTION (WHETHER BY WAY OF DEPREC IATION OR OTHERWISE) IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OF AN Y ONE PREVIOUS YEAR,' THE PROVISIONS GRANTING ADDITIONAL DEPRECIATION CLE ARLY STATE THAT ASSESSEE IS ENTITLED TO ADDITIONAL DEPRECIATIO N IF TWO CONDITIONS BEING (I) PLANT & MACHINERY IS ACQUIRED AND INSTALLED AFTER 31ST MARCH 2005 AND (II) IS ENGAGED IN MANUFA CTURING & PRODUCTION OF ANY ARTICLE OR THING. IN THE PRESENT CASE, THE APPELLANT DOES NOT FULFILL BOTH THE CONDITIONS TO C LAIM THE ADDITIONAL DEPRECIATION. CONSIDERING THE FACTS DISC USSED HEREIN ABOVE IT ARE HELD THAT APPELLANT IS NOT ENTITLED TO ADDITIONAL DEPRECIATION. THE DISALLOWANCE OF ADDITIONAL DEPREC IATION ON ITA NO.2813/AHD/2016 7 MACHINERY FOR THE PURPOSE OF CONSTRUCTION WORK IS C ONFIRMED AS THESE ARE NOT USED FOR THE PURPOSES AS DISCUSSED AB OVE AND DOES NOT FULFILL THE CRITERIA ENUMERATED FOR ALLOWANCE O F ADDITIONAL DEPRECIATION. THIS GROUND OF APPEAL IS DISMISSED. 9. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT T HE LD.REVENUE AUTHORITIES FAILED TO APPRECIATE THE CONTROVERSY. IN FACT, IT HAS NOT BEEN CLAIMING ADDITIONAL DEPRECIATION, RATHER HIGHER RAT E OF DEPRECIATION ON THE VEHICLE USED FOR CONSTRUCTION BUSINESS. ACCORDING TO THE ASSESSEE, ORIGINALLY A CLAIM FOR DEPRECIATION AT THE RATE OF 15% WAS MADE WHERE VEHICLES USED IN CONSTRUCTION BUSINESS ARE ELIGIBLE FOR DEPRECIATION AT THE RATE OF 40%. THUS, THE DISPUTE BETWEEN THE ASSESSEE AND THE REVENUE IS , WHETHER DEPRECIATION IS TO BE GRANTED AT THE RATE OF 15% OR 40%. THE LD.RE VENUE AUTHORITIES HAVE DISALLOWED THE CLAIM BY HOLDING THAT THE ASSESSEE H AS BEEN CLAIMING ADDITIONAL DEPRECIATION WHICH IS AVAILABLE TO AN ASSESSEE ENGA GED IN THE MANUFACTURING ACTIVITY. IN SUPPORT OF HIS CONTENTIONS, THE LD.CO UNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF ITAT IN THE CASE OF DCIT VS. RAKE SH JAIN,49 SOT 57 (CHAND) WHEREIN DEPRECATION ON TIPPERS, VIBRATORS E TC. WAS ALLOWED AT THE RATE OF 40%. THE LD.DR CONTENDED THAT THERE IS NO DISCU SSION IN THE IMPUGNED ORDER IN THIS ANGLE OF CONTROVERSY. HE RELIED UPON THE ORDER OF THE LD.CIT(A). 10. WE HAVE DULY CONSIDERED RIVAL CONTENTION AND GO NE THROUGH THE RECORD CAREFULLY. WE FIND THAT THE LD.REVENUE AUTHORITIES HAVE APPRECIATED THE CONTROVERSY WITH A DIFFERENT ANGLE THAN THE ONE AGI TATED BY THE ASSESSEE. THE CASE OF THE ASSESSEE IS, WHETHER DEPRECIATION ON TH E VEHICLES AND INSTRUMENTS USED FOR CONSTRUCTION BUSINESS WILL BE ALLOWED AT 4 0% OR 15%, WHEREAS THE REVENUE AUTHORITIES HAVE CONSIDERED THIS ISSUE, WHE THER THE ASSESSEE IS ENTITLED FOR ADDITIONAL DEPRECIATION OR NOT. CONSI DERING THE ABOVE FACTS, WE DEEM IT APPROPRIATE TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR EXAMINATION. THE LD.AO SHALL CONSIDER THE CLAIM OF THE ASSESSEE, WHETHER IT IS ENTITLED FOR HIGHER RATE OF DEPRECATION OR NOT. TH E LD.AO SHALL LOOK INTO THE ITA NO.2813/AHD/2016 8 ORDER OF THE ITAT IN THE CASE OF RAKESH JAIN (SUPRA ) . THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 23 RD OCTOBER, 2018 AT AHMEDABAD. SD/ - (AMARJIT SINGH) ACCOUNTANT MEMBER SD/ - (RAJPAL YADAV) JUDICIAL MEMBER