The Raja Srinivas, Visakhapatnam., Visakhapatnam V. The Addl. CIT, Range-1, Visakhapatnam

ITA 294/VIZ/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0609 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-04-2010
• Assessment Year: misc
• Appeal Filed On: 29-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S S GOPINATH
• Keywords: Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.294/VIZAG/2009 ASSESSMENT YEAR : 2006-07 RAJA SRINIVAS VISAKHAPATNAM ACIT RANGE-1 VISAKHAPATNAM (APPELLANT) VS. (RESPONDENT) PAN NO.ABTPS 7524D APPELLANT BY: SHRI C. SUBRAHMANYAM, CA RESPONDENT BY: SHRI G.S.S. GOPINATH, DR ORDER PER SHRI S.K. YADAV, JUDICIAL MEMBER:- THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) MAINLY ON TWO GROUNDS, ONE IS WITH REGARD TO AN ADDITION ON ACCOUNT OF ALLEGED DIFFERENCE IN WORK IN PROGRESS AT RS.14, 42,216/- AND THE ANOTHER ON DISALLOWANCE OF INTEREST PAYMENT ON BANK LOANS A T RS.2,29,376/-. 2. THE FACTS IN BRIEF BORNE OUT FROM THE RECORD ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND PROPRIETOR OF M/S. LAKSHMI ASSOCIATE S AND IS ENGAGED IN THE BUSINESS OF APARTMENT CONSTRUCTION AND CIVIL CONTRA CT WORKS OF VIZAG SEA PORT PRIVATE LIMITED. HE IS ALSO HAVING AN INCOME FROM HOUSE PROPERTY AND ALSO FROM OTHER SOURCES. HE FILED ITS RETURN OF INCOME DISCLOSING AN INCOME OF RS.19,99,047/-. AFTER SCRUTINIZING THE CASE, THE A .O. COMPLETED THE ASSESSMENT BY DETERMINING THE TOTAL INCOME OF RS.36 ,78,982/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTICED THAT ASSESSEE HAD UNDERTAKEN THREE REAL ESTATE PROJECTS I.E. VENUSURY A VIHAR AT SITHAMMADHARA, VENURAMA NILAYA AT MARRIPALEM AND VENUROYAL AT B.S. LAYOUT. THOUGH THE ASSESSEE WAS FOLLOWING THE PERCENTAGE COMPLETION ME THOD BUT THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS OF PROJECTWISE CON STRUCTION. THE DETAILS WERE FILED BY THE ASSESSEE BUT IT WAS NOT ACCEPTED BY TH E A.O. AND HE HAS ESTIMATED THE SUPPRESSION OF VALUE OF THE WORK IN P ROGRESS AT RS.14,42,216/- AND CONSEQUENTLY MADE THE ADDITION OF THE SAME AS U NDISCLOSED INCOME OF 2 THE ASSESSEES. BESIDES THE A.O. HAS NOTICED THAT A SSESSEE HAS SHOWN THE INTEREST RECEIPT OF RS.9,835/- BUT CLAIMED INTEREST PAYMENT OF RS.2,29,376/-. THE A.O. FURTHER NOTICED THAT THE INTEREST PAYMENTS WERE NOT DEBITED TO THE P&L ACCOUNT OF THE ASSESSEE. THEREFORE, HE CONCLUD ED THAT SUCH INTEREST PAYMENTS WERE NOT RELATED TO HIS BUSINESS ACTIVITIE S AND HE MADE THE ADDITION OF THE SAME AFTER MAKING DISALLOWANCE. 3. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT( A) BUT DID NOT FIND FAVOUR WITH HIM. 4. NOW THE ASSESSEE IS BEFORE US WITH THE SUBMISSIO N THAT ASSESSEE HAS NOT MAINTAINED ANY SEPARATE BOOKS OF ACCOUNTS FOR D IFFERENT PROJECTS. HE HAS MAINTAINED ONLY ONE SET OF ACCOUNTS FOR ITS ENTIRE BUSINESS ACTIVITY AND HAS ALSO BEEN FOLLOWING THE PERCENTAGE COMPLETION METHO D WHICH IS ONE OF THE RECOGNIZED METHOD IN THE LINE OF CONSTRUCTION ACTIV ITY. HAVING WORKED OUT PROFIT ON THIS METHOD, ASSESSEE FILED HIS RETURN OF INCOME. THOUGH IT WAS STATED BEFORE THE A.O. THAT THERE IS NO SEPARATE SE T OF BOOKS OF ACCOUNTS FOR EACH PROJECT OR EACH BUSINESS ACTIVITY, THEREFORE I T WAS NOT POSSIBLE TO PREPARE THE DETAILS PROJECTWISE, BUT THE A.O. HAS I NSISTED THE ASSESSEE TO PREPARE THE DETAILS PROJECTWISE AND ACCORDINGLY THE DETAILS WERE PREPARED ON THE BASIS OF THE CONSOLIDATED BOOKS OF ACCOUNTS BUT IT WAS NOT ACCEPTED BY THE A.O. AND HE MADE AN ADDITION OF RS.14,42,216/- AS SUPPRESSION OF VALUE OF THE WORK IN PROGRESS WITHOUT POINTING OUT SPECIF IC DEFECT IN THE DETAILS OR THE MAINTENANCE OF BOOKS OF ACCOUNTS FURNISHED BY T HE ASSESSEE. SINCE THE ASSESSEE HAS BEEN FOLLOWING ONE OF THE RECOGNIZED M ETHOD OF ACCOUNTING, THE A.O. HAS NO JURISDICTION TO REJECT THAT METHOD OF A CCOUNTING AND ASK THE ASSESSEE TO PREPARE THE ACCOUNTS IN A MANNER IN WHI CH HE LIKES. SO FAR AS ADDITION ON ACCOUNT OF INTEREST IS CONCERNED, THE I NTEREST PAYMENTS WERE MADE TO THE BANKERS ON LOANS OBTAINED FOR ITS BUSIN ESS PURPOSE, AS SUCH, THE ASSESSEE HAS RIGHTLY CLAIMED THE INTEREST PAYMENT T O BE THE REVENUE EXPENDITURE. THE A.O. HAS OBSERVED IN HIS ORDER AT ONE PLACE THAT THE INTEREST PAYMENT WAS NOT DEBITED TO THE P&L ACCOUNT OF THE ASSESSEES. ONCE THE PAYMENT IS NOT DEBITED THEN HOW IT CAN BE DISAL LOWED BY THE A.O. WHILE DETERMINING THE TOTAL INCOME. 3 5. THE LD. D.R. ON THE OTHER HAND HAS PLACED THE RE LIANCE UPON THE ORDER OF THE CIT(A). 6. HAVING CAREFULLY EXAMINED THE ORDER OF THE LOWER AUTHORITIES, WE FIND THAT UNDISPUTEDLY ASSESSEE HAS BEEN MAINTAINING ONE SET OF BOOKS OF ACCOUNTS FOR ITS ENTIRE BUSINESS ACTIVITY. HE HAS BEEN FOLLOWING THE PERCENTAGE COMPLETION METHOD WHICH IS ONE OF THE RE COGNIZED METHOD OF ACCOUNTING IN THE LINE OF CONSTRUCTION ACTIVITY. B UT THE A.O. HAS FORCED THE ASSESSEE TO PREPARE THE DETAILS ON PROJECTWISE AND WHEN THE DETAILS ARE PREPARED, THE ASSESSING OFFICER HAS WORKED OUT THE SUPPRESSION OF THE VALUE OF WORK IN PROGRESS AT RS.14,42,216/- AND MADE THE ADDITION OF THE SAME. FROM THE ORDER OF THE A.O., IT IS NOT CLEAR, FROM W HERE HE HAS TAKEN THE FIGURES AND HOW HE HAS WORKED OUT THE SUPPRESSION O F VALUE OF WORK IN PROGRESS. ACCORDING TO US WHEN THE ASSESSEE HAS BE EN FOLLOWING ONE OF THE RECOGNIZED METHOD OF ACCOUNTING, THE ASSESSING OFFI CER SHOULD HAVE EXAMINED THAT MODE OF COMPUTATION OF ITS INCOME AS PER THE M ETHOD OF ACCOUNTING ADOPTED BY HIM AND IF HE IS NOT SATISFIED WITH THE RESULT DECLARED BY THE ASSESSEE, HE SHOULD MAKE AN ENQUIRY AND FIND FAULT THEREIN. INSTEAD, THE ASSESSEE WAS ASKED TO PREPARE THE PROJECTWISE DETAI LS DESPITE OF THE FACTS THAT ASSESSEE HAS BEEN MAINTAINING ONLY ONE SET OF BOOKS AND COMPLETE PROJECTWISE DETAILS WERE NOT AVAILABLE WITH THE ASS ESSEE. WE THEREFORE OF THE VIEW THAT MODE ADOPTED BY THE A.O. FOR FINDING FAUL T IN THE ACCOUNTS OF THE ASSESSEE IS NOT PROPER. SINCE THE ASSESSEE HAS BEE N FOLLOWING ONE OF THE RECOGNIZED METHOD OF ACCOUNTING IT SHOULD HAVE BEEN EITHER ACCEPTED BY THE A.O. OR IF NOT SATISFIED, HE SHOULD EXAMINE THE ACC OUNTS MAINTAINED BY THE ASSESSEE AND FIND FAULT THEREIN. WE THEREFORE OF T HE VIEW THAT THE MATTER SHOULD BE RE-LOOKED BY THE ASSESSING OFFICER AND TO RE-EXAMINE THE RESULT DECLARED BY THE ASSESSEES AS PER THE PERCENTAGE COM PLETION METHOD TO DETERMINE THE TOTAL INCOME OF THE ASSESSEES. 7. SO FAR AS ADDITION ON ACCOUNT OF INTEREST IS CON CERNED, WE FIND THAT ONCE THE A.O. ITSELF HAS OBSERVED THAT IT WAS NOT D EBITED TO THE P&L ACCOUNT HOW THIS INTEREST PAYMENT COULD BE DISALLOWED. MOR EOVER, THE ASSESSEE 4 HIMSELF HAS STATED THAT THIS INTEREST PAYMENT WAS M ADE TO THE BANKERS ON LOANS OBTAINED FOR HIS BUSINESS ACTIVITY, THE SAME SHOULD BE ALLOWED. THEREFORE, THIS ISSUE IS ALSO TO BE RESTORED BACK T O THE FILE OF THE A.O. FOR EXAMINATION, THE NATURE OF LOANS ON WHICH THE INTER EST PAYMENT WAS MADE. ACCORDINGLY, THE ORDER OF THE CIT(A) IS SET ASIDE A ND THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. WITH DIRECTION TO RE-E XAMINE THIS ISSUE IN TERMS INDICATED ABOVE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSE. PRONOUNCED IN THE OPEN COURT ON 19.7.2010 SD/- SD/- (BR BASKARAN) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER VG/SPS VISAKHAPATNAM, DATED 19 TH JULY, 2010 COPY TO 1 B. RAJA SRINIVAS, FLAT NO.10, VENU APARTMENTS, 61 , VIJAYANAGAR PALACE LAYOUT, VISAKHAPATNAM 2 ACIT, RANGE-1, VISAKHAPATNAM 3 THE CIT, VISAKHAPATNAM 4 THE CIT(A), VISAKHAPATNAM 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM