M/S. DELCON, Kolkata V. Income Tax Officer, Ward-50(4), Kolkata, Kolkata

ITA 2814/KOL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83112 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2008-2009
• Appeal Filed On: 19-12-2013
• Court: TRIBUNAL
• Department Lawyers: MD GAYALUDDIN ANSARI JCITSR
• Assessee Lawyers: SOUMITRA CHOW DHURY
• Keywords: Reopening of assessment; Depreciation; Business expenditure; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH S MC, KOLKATA [BEFORE SHRI MAHAVIR SINGH, JM ] /ITA NO.2814/KOL/2013 ASSESSMENT YEAR : 2008-09 ( APPELLANT ) - (RESPONDENT) M/S.DELCON, . -VERSUS- I.T.O., WARD-50(4), KOLKATA KOLKATA (PAN:AAEFD 0580 E) FOR THE APPELLANT: SHRI SOUMITRA CHOWDHURY, ADVOCATE FOR THE RESPONDENT: MD.GAYALUDDIN ANSARI, JCIT,SR.DR DATE OF HEARING : 22.08.2014. DATE OF PRONOUNCEMENT :05.09.2014 ORDER THIS APPEAL OF ASSESSEE IS ARISING OUT OF O RDER OF CIT(A)-XXXII, KOLKATA IN APPEAL NO.35/XXXII/12-13/50(4)/KOL DATED 01.10.2013 . ASSESSMENT WAS FRAMED BY I.T.O. WARD-50(4), KOLKATA U/S 147/143(3) OF THE IN COME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR A.Y. 2008-09 VIDE ITS ORDER DATED 13/08/2012. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST ORDER OF CIT(A) CONFIRMING DISALLOWANCE OF EXPENSES OF RS.1,24,099/- INCLUDED IN THE WORK-IN-PROGRESS ON MERITS AND ALSO ON TECHNICAL GROUND THAT WITHOUT REJECTING THE BOOKS U/S 145(3) OF THE ACT EXPENSES CANNOT BE DISALLOWED. FOR THIS ASSESSEE HA S RAISED THE FOLLOWING TWO EFFECTIVE GROUNDS:- 2. FOR THAT ON THE FACTS OF THE CASE, THE LD.CIT(A ) WAS WRONG IN DISALLOWING THE BUSINESS EXPENSES RS.124,099/- INCLUDING IN WORK-IN -PROGRESS IN DISMISSING THE APPEAL WITHOUT REJECTING THE AUDITED ACCOUNT U/S 145(3) OF THE I.T.ACT IS COMPLETELY ARBITRARY, UNJUSTIFIED AND ILLEGAL. 3. FOR THAT ON THE FACTS OF THE CASE, THE CIT(A) SH OULD NOT HAVE SUSTAIN THE DISALLOWANCE OF BUSINESS EXPENSES RS.124,099/- BY HOLDING IT TO BE ADMINISTRATIVE OVERHEADS EXPENSES CANNOT BE INCLUDED IN WORK-IN-PROGRESS, SUCH FINDIN G IS ARBITRARY, UNJUSTIFIED AND ILLEGAL. 3. I HAVE HEARD THE RIVAL CONTENTIONS AND GONE THRO UGH FACTS AND CIRCUMSTANCES OF THE CASE. BRIEF FACTS ARE THAT THE AO DURING THE CO URSE OF RE-ASSESSMENT PROCEEDINGS NOTICED THAT ASSESSEE IN THE ACCOUNTS FOR THE YEAR ENDING 31.03.2006 ADDED ITA NO.2814/KOL/2013 M/S.DELCON A.YR.2008-09 2 ADMINISTRATIVE AND OVERHEAD EXPENSES RELATING TO BU SINESS IN THE WORK-IN-PROGRESS. THE FOLLOWING ARE THE EXPENSES AS ON 31.03.2006 :- WORK-IN-PROGRESS BALANCE AS PER LAST ACCOUNT ADD:ATTRIBUTABLE COSTS BANK CHARGES 531.00 GENERAL EXPENSES 1,535.00 BISWAKARMA PUJA EXPENSES 9,365.00 PURCHASES 7,91,370.00 CARRING CHARGES 1,000.00 SUBSCRIPTION & DONATION 2,415.00 PRINTING & STATIONERY 821.00 SALARY & BONUS 39,000.00 SITE EXPENSES 18,416.00 RATES & TAXES 300.00 8,66,236.00 THE FOLLOWING ARE THE EXPENSES AS ON 31.03.2007. WORK-IN-PROGRESS BALANCE AS PER LAST ACCOUNT ADD:ATTRIBUTABLE COSTS BANK CHARGES 1,573.00 GENERAL EXPENSES 1,040.00 PURCHASES 1,134,128.96 SUBSCRIPTION & DONATION 101.00 SITE EXPENSES 3,829.00 LABOUR EXPENSES 828.00 ADVERTISEMENT EXPENSES 300.00 OFFICE EXPENSES 1,412.00 PRINTING & STATIONERY 850.00 SALARY & BONUS 39,000.00 RATES & TAXES 300.00 11,83,361.96. 4. THE AO NOTED THAT THE ASSESSEE INSTEAD OF CLAIMI NG THESE EXPENSES IN FINANCIAL YEAR 2005-06 RELEVANT TO A.Y.2006-07 AT RS.74,866/- AND FOR THE FINANCIAL YEAR 2006- 07 RELEVANT TO A.Y.2007-08 AT RS.49,233/- INCLUDED THE SAME IN THE TOTAL WORK-IN- PROGRESS OF THE RELEVANT YEARS BUT CLAIMED THESE EX PENSES IN THE FINANCIAL YEAR 2007-08 RELEVANT TO A.Y.2008-09. ACCORDING TO THE AO THESE EXPENSES PERTAIN TO A.Y.2006-07 AND 2007-08 AND NOT RELATING TO A.Y.2008-09. EVEN, ACCORDING TO THE AO, THE ASSESSEE HAS NOT CLAIMED LOSS IN THE RESPECTIVE YEARS I.E. A .Y 2006-07 AND 2007-08. THE AO DISALLOWED THESE EXPENSES FOR THE REASON THAT THESE ADMINISTRATIVE AND OVER HEAD EXPENSES PERTAINED TO EARLIER YEARS. FOR E.G. THE A O RECORDED THE EXPENSES FOR ITA NO.2814/KOL/2013 M/S.DELCON A.YR.2008-09 3 FINANCIAL YEAR 2008-09. AGGRIEVED ASSESSEE PREFERRE D APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO BY NOTING THE ACCOUNTING STANDARDS PRESCRIBED BY ICAI I.E. AS-7 BY OBSERVING AS UNDER :- THE SUBMISSION OF THE ASSESSEE ARE CONSIDERED BUT THEY ARE NOT ACCEPTABLE. AS PER THE ICAI, THE CONSTRUCTION CONTRACTS ARE MANDATORILY TO BE REPORTED AS PER AS-7. AS PER PARA 19 OF AS-7 UNDER THE HEAD OF CONTRACT COST, IT IS MENTIONED AS UNDER :- 19. COSTS THAT CANNOT BE ATTRIBUTABLE TO CONTACT A CTIVITY OR CANNOT BE ALLOWED TO A CONTRACT ARE EXCLUDED FROM THE COST OF A CONSTRUCTI ON CONTRACT. SUCH COSTS INCLUDE : (A) GENERAL ADMINISTRATION COST FOR WHICH REIMBURSEMENT IS NOT SPECIFIED IN THE CONTRACT; (B) SELLING COSTS; (C) RESEARCH AND DEVELOPMENT COSTS FOR WHICH REIMBURSEM ENT IS NOT SPECIFIED IN THE CONTRACT; AND (D) DEPRECIATION OF IDLE PLANT AND EQUIPMENT THAT IS NO T USED ON A PARTICULAR CONTRACT. THEREFORE, GENERAL ADMINISTRATION COSTS FOR WHICH REIMBURSEMENT IS NOT SPECIFIED IN THE CONTRACT CANNOT BE INCLUDED IN CONTRACT COST. AS PE R THE DETAIL OF WORK-IN-PROGRESS, THE ASSESSEE HAS NOT CLAIMED ANY LABOUR EXPENSES IN A.Y .2006-07 AND ONLY RS.828/- HAS BEEN CLAIMED AS LABOUR EXPENSES IN A.Y.2007-08. THE BULK OF THE W.I.P. COMPRISE ONLY OF PURCHASES OF RS.7,91,370/- & RS.11,34,129/- TOTA LING RS.19,25,499/-. IT IS A VERY STRANGE ACCOUNTING OF A CONSTRUCTION CONTRACT WITH VIRTUALLY NO LABOUR COST. THE ASSESSEE HAS RELIED ON THE CASE LAW OF M/S.MKB(ASIA )(P)LTD. V.CIT (2008) 167 TAXMAN 256 (GAU) TO CLAIM THAT THE AO CANNOT CHANGE THE AS SESSEES METHOD OF ACCOUNTING. HOWEVER, THIS CASE LAW HAS HELD THAT AS-7 IS AN APP ROVED SYSTEM OF ACCOUNTING AND THE QUESTION OF LAW BEFORE THE HONBLE COURT WAS WHETHE R THE ITAT WAS RIGHT IN NOT ACCEPTING THE VALUATION OF CLOSING W.I.P.IN ACCORDA NCE WITH AS-7? THIS DECISION WAS ACCORDINGLY ANSWERED. 6. IN VIEW OF THE ABOVE AND SINCE THE ASSESSEE HAS NOT DISPUTED THE QUESTION OF REOPENING OF ASSESSMENT, THE APPEAL OF THE ASSESSEE IS DISMIS SED AND THE ADDITION IS CONFIRMED. IT IS HELD THAT THE W.I.P. CANNOT INCLUDE ADMINISTRATIVE OVERHEADS AS PER ACCOUNTING STANDARD-7 ISSUED BY THE INSTITUTE OF CHARTERED ACC OUNTANTS. 5. AGGRIEVED ASSESSEE CAME IN APPEAL BEFORE ITAT. I FIND FROM THE ABOVE FACTS AND CIRCUMSTANCES THAT ADMITTEDLY THE EXPENSES TO T HE EXTENT OF RS.74,600/- PERTAIN TO A.Y. 2006-07 AND EXPENSES TO THE EXTENT OF RS.49,23 3/- PERTAIN TO A.Y.2007-08. THE ASSESSEE HIMSELF HAS GIVEN THE FOLLOWING DETAILS:- ASSTT.YEAR : 2006-07 AS PER BALANCE SHEET (WIP) RS.866,236.00 LESS : PURCHASED FOR THE YEAR AS SHOWN IN BALANCE SHEET RS.791,370.00 INDIRECT COST RS.74,866.00 ASSTT.YEAR : 2007-08 AS PER BALANCE SHEET (WIP) (EXCLUDING CARRIED FORWARD) RS.11,83,361.96 ITA NO.2814/KOL/2013 M/S.DELCON A.YR.2008-09 4 LESS : PURCHASED FOR THE YEAR AS SHOWN IN BALANCE SHEET RS.11,34,128.96 INDIRECT COST RS.49,233.00 RS.124,099. 00 THE CLAIM OF THE ASSESSEE BEFORE ME WAS THAT THESE EXPENSES ARE MADE PART OF WORK-IN- PROGRESS. I FAIL TO UNDERSTAND HOW ASSESSEE HAS MAD E THESE EXPENSES AS PART OF WORK- IN-PROGRESS IN THESE TWO YEARS AND CARRIED FORWARD FOR THIS YEAR. NOW THE ASSESSEE HAS SEGREGATED THESE EXPENSES FROM THE WORK-IN-PROGRESS . I FIND NO BASIS FOR CLAIMING THESE EXPENSES BY THE ASSESSEE FOR THIS YEAR. HENCE AO HAS RIGHTLY DISALLOWED THE SAME. THE CIT(A) HAS ALSO CONSIDERED THE ISSUE OF C HANGE IN ACCOUNTING METHOD, WHICH IS NOT THE CASE IN THE PRESENT CASE. EVEN, FO R MAKING DISALLOWANCE OF THESE EXPENSES THERE IS NO NEED TO REJECT THE BOOKS OF AC COUNT. HENCE, I FIND NO REASON IN THE ARGUMENT OF THE LD. COUNSEL OF THE ASSESSEE AND ORD ERS OF THE LOWER AUTHORITIES ARE REASONABLE AND WITH SUBSTANCE. HENCE, I CONFIRM THE ORDER OF THE LOWER AUTHORITIES AND THE APPEAL OF ASSESSEE IS DISMISSED. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 05.09.2014. SD/- [ MAHAVIR SINGH ] JUDICIAL MEMBER DATE: 05.09.2014 R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. M/S. DELCON, P-79, KALINDI HOUSING ESTATE, KOLKATA- 700089. 2 THE I.T.O.-WARD-50(4), KOLKATA 3. THE CIT, 4. THE CIT(A)-XXXII, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES