ACIT CIR 12(3), MUMBAI V. INDUSTRIAL PLANT & WASTE TREATMENT CORPORATION, MUMBAI

ITA 3036/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79483 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2009-2010
• Appeal Filed On: 19-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 133(6); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; JH FOT; IKY JKO U;KF;D LNL; ,OA ,OA ,OA ,OA JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K JH JKTSUNZ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO.3036/MUM/2013 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2009-10 ACIT CIRCLE 12(3), MUMBAI. R. NO. 137, 1 ST FLOOR, AAYAKAR BHAVAN MUMBAI 400 020. VS. M/S INDUSTRIAL PLANT & WASTE TREATMENT CORPORATION. 34, DEONAR ANCILLARY INDUSTRIAL COMPLEX, GOVANDI (W) MUMBAI 400 043 PAN:-AAAFI8082J APPELLANT RESPONDENT REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS MS. AMRITA SINGH ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS NONE ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 4.1.2013 OF CIT (A) FOR THE ASSESSMENT YEAR 2009-10. THE REVENU E HAS RAISED FOLLOWING GROUNDS IN THIS APPEAL:- 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CITC-\) HAS ERRED IN DELETING THE ADDITION OF RS.75,00,000/- MA DE BY THE ASSESSING OFFICER U/S.145 OF THE IT. ACT, 1961 DESPITE THE FACT THAT THE ASSESSEE WAS FOLLOWING THE METHOD OF ACCOUNTING WHICH NEITHER FALLS UNDER MERC ANTILE SYSTEM NOR CASH SYSTEM OF ACCOUNTING.' DATE OF HEARING 24.07.2014 DATE OF PRONOUNCEMENT 30.07.2014 M/S INDUSTRIAL PLANT & WASTE TREATMENT CORPORATION. 2 | P A G E 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT THERE WERE NUMEROUS MISMATCHES BETWEEN PURCHASES EXECUTED BY THE ASSESSEE AND THEIR REFLEC TION IN STOCK AND THE ASSESSEE MAINTAINED NO STOCK OF REGISTER WHICH CALL FOR ATTE NTION OF SECTION 145 OF THE L.T.ACT, 1961.' 3. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND(S) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED .' 2. THE ASSESSEE IS A CONTRACTOR FIRM ENGAGED IN THE BUSINESS OF ENVIRONMENT INFRASTRUCTURE, WATER AND SEWERAGE PLANT, PUMPING S TATION, CIVIL CONSTRUCTION WORK RELATED TO WATER PROOFING SYSTEM AND SOLID WASTE MA NAGEMENT. THE ASSESSING OFFICER HAS POINTED OUT SHORTCOMINGS IN THE BOOKS O F ACCOUNTS AND ALSO QUESTIONED THE SYSTEM OF ACCOUNTING ADVANCES FOLLOWED BY THE A SSESSEE. ACCORDINGLY THE ASSESSING OFFICER HELD THAT THE ASSESSEE WAS NOT M AINTAINING ACCOUNTS ON MERCANTILE BASIS. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THE SIMILAR ISSUE HAS BEEN DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2005-06. THE ASSESSING OFFICER DID NOT ACCEPT THE C ONTENTION OF THE ASSESSEE AND EXPRESSED HIS VIEWS THAT THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE IS NOT APPLICABLE BECAUSE THE FACTS WERE NOT PUT UP TO THE TRIBUNAL IN THE CORRECT PERSPECTIVE. ACCORDINGLY THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS FOLLOWING SUCH SYSTEM OF ACCOUNTING WHICH NEITHER MERCANTILE NOR CASH AND, THEREFORE, IT IS NOT PERMISSIBLE U/S 145 OF THE INCOME TAX ACT. CONS EQUENTLY, THE ASSESSING OFFICER REJECTED THE BOOK RESULTS BY INVOKING THE PROVISION S OF SECTION 145 AND ESTIMATED THE INCOME OF THE ASSESSEE BY MAKING ADDITION OF RS . 75 LACS TO THE RETURNED INCOME OF THE ASSESSEE. 3. ON APPEAL, CIT(A) HAS DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY FOLLOWING THE ORDER OF THIS TRIBUNAL IN ASSESSEE S OWN CASE FOR THE A.Y. 2005-06, THE CIT(A) HAD DECIDED THE ISSUE IN PARA 4 AND 4.1 OF ITS ORDER AS UNDER:- M/S INDUSTRIAL PLANT & WASTE TREATMENT CORPORATION. 3 | P A G E 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER, SUBMIS SIONS MADE BY THE APPELLANT ORAL AND WRITTEN AND VARIOUS DOCUMENTS SUBMITTED BY IT. THE ASSESSING OFFICER, INVOKED THE PROVISION OF SECTION 145(3) OF THE ACT AND MADE AD HOC ADDITION OF RS. 70,00,0001 - ON THE GROUND THAT APPELLANT DOES NOT FOLLOW EITHER MERCANTILE METHOD OF ACCOUNTING OR CASH METHOD OF ACCOUNTING. SECTION 145 OF THE ACT DEALS WITH THE METHOD OF ACC OUNTING. THE SAME READS AS UNDER: - 'METHOD OF ACCOUNTING. 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL, S UBJECT TO THE PROVISIONS OF SUB- SECTION (2), BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME ACCOUNTING STANDARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESS EE, THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MANNER PROVIDED IN SECTIO N 144.' 4.1 UNDER SUB SECTION (1) IT IS MANDATORY THAT INCO ME UNDER THE HEAD BUSINESS IS TO BE COMPUTED IN ACCORDANCE WITH EITHER CASH OR MERCA NTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. SECTION 145(3) OF ACT PROVIDES FOR ASSESSMENT IN THE MANNER PRESCRIBED IN SECTION 144 OF THE ACT, WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR WHERE EITHER THE METHOD OF ACCOUNTING PROVIDED I N SUB-SECTION (1) OR THE ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. THIS IS NOT THE CASE OF THE ASSESSING OFFICER THAT THE APPELLANT HAD NOT FOLLOWED EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING STIP ULATED IN SUB- SECTION (1) OF SECTION 145 OF THE ACT. IN FACT, THE APPELLANT'S BO OKS WERE AUDITED UNDER SECTION 44AB OF THE ACT WHEREIN IT IS CERTIFIED BY THE AUDI TOR THAT APPELLANT FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. THIS IS ALSO NOT THE CASE OF THE ASSESSING OFFICER THAT THE CENTRAL GOVERNMENT HAD NOTIFIED ANY PARTICULAR ACCO UNTING STANDARDS TO BE FOLLOWED BY THE CONTRACTORS ENGAGED IN THE BUSINESS THAT IS CARRIED OUT BY THE APPELLANT. HENCE, EVEN SECOND PART OF SUB-SECTION (3) OF SECTI ON 145 DOES NOT APPLY TO THIS CASE. THE ASSESSING OFFICER HAD NOT POINTED OUT ANY DEFEC T IN THE ACCOUNTS BOOKS MAINTAINED BY THE ASSESSEE, WHICH, ADMITTEDLY, WERE PRODUCED BEFORE THE M/S INDUSTRIAL PLANT & WASTE TREATMENT CORPORATION. 4 | P A G E ASSESSING OFFICER FOR HIS CONSIDERATION. THIS IS AL SO NOT THE FINDING OF THE ASSESSING OFFICER THAT THE ACCOUNT OF THE ASSESSEE WAS NOT CO MPLETE. NO PROVISION EITHER IN THE ACT OR IN THE RULES REQUIRING AN ASSESSEE CARRYING BUSINESS OF THIS NATURE, TO MAINTAIN A STOCK REGISTER, AS A PART OF ITS ACCOUNT S HAS BEEN BROUGHT ON RECORD, BY NON-MAINTAINING STOCK REGISTER CANNOT BE THE GROUND TO TREAT THE BOOKS OF ACCOUNT AS INCOMPLETE OR INCORRECT. AS REGARDS, ACCOUNTING OF ADVANCES, THE ISSUE IS SE TTLED CLEARLY IN FAVOUR OF THE APPELLANT VIDE THE DECISION OF THE HON. TRIBUNAL I N ITS OWN CASE FOR THE EARLIER YEARS. NON RECEIPT OF REPLIES FROM THE PARTIES TO WHOM NOT ICE ULS 133(6) OF THE ACT WERE SERVED CANNOT AMOUNT TO INCOMPLETE OR INCORRECT ACC OUNTS. THE ASSESSING OFFICER WAS AT LIBERTY TO SUMMON ANY OR ALL OF THEM IN CASE HE WANTED TO VERIFY THE GENUINENESS OF THE TRANSACTIONS MADE WITH THEM BY T HE APPELLANT. NO SUCH COURSE OF ACTION WAS, HOWEVER, ADOPTED BY THE ASSESSING OF FICER. FAILURE OF THE APPELLANT'S CREDITORS TO REPLY NOTICES ISSUED U 1 S 133 (6) OF THE ACT, COULD NOT HAVE BEEN A GROUND FOR REJECTING THE ACCOUNTS UNDER SECTION 145 (3) OF THE ACT. IN HIS ORDER, THEA SSESSING OFFICE HEAVILY RELIED O N THE FACT THAT NO CLOSING STOCK WAS SHOWN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THE APPELLANT FILED ITS AUDITED FINANCIAL STATEMENTS AND FROM THE SAME IT IS SEEN T HAT APPELLANT HAD SHOWN WORK IN PROGRESS AT RS. 1,30,00,0001- AS ON MARCH 31, 2009 AND RS. 1,85,00,0001- AS ON MARCH 31, 2008. THUS, EVEN ON THIS GROUND TOO, ASSE SSING OFFICER ERRED IN INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT. THE SO CALLED SHORT COMINGS POINTED OUT BY THE ASSE SSING OFFICER WERE IN FACT THE MATTER OF FURTHER VERIFICATIONS FOR WHICH THE PROVI SIONS OF DETAILED ASSESSMENT IS MADE IN THE SCHEME OF THE ACT. THE ASSESSING OFFICE INSTEAD OF LOOKING INTO THE MATTER IN DETAIL CHOSE TO MAKE AD HOC ADDITION IGNO RING THE SUBMISSIONS MADE BY THE APPELLANT BY INVOKING PROVISIONS OF SECTION 145 OF THE ACT. SO FAR AS SECTION 145 IS CONCERNED, IT IS WORTH NOT ING OBSERVATION OF THE HON'BLE SUPREME COURT IN THE CASE OF BRITISH PAINTS INDIA L TD. (SUPRA) AT PAGE-56 AS UNDER: 'SECTION 145 OF THE INCOME TAX ACT, 1961, CONFERS S UFFICIENT POWERS UPON THE OFFICER - NAY IT IMPOSES A DUTY UPON HIM TO MAKE SU CH COMPUTATION IN SUCH MANNER AS HE DETERMINES FOR DEDUCING THE CORRECT PR OFITS AND GAINS. THIS MEANS THAT WHERE ACCOUNTS ARE PREPARED WITHOUT DISC LOSING THE REAL COST OF THE STOCK-IN-TRADE, ALBEIT ON SOUND EXPERT ADVICE I N THE INTEREST OF EFFICIENT ADMINISTRATION OF THE COMPANY, IT IS THE DUTY OF TH E INCOME TAX OFFICER TO DETERMINE THE TAXABLE INCOME BY MAKING SUCH COMPUTA TION AS HE THINKS FIT.' FURTHER, IT HAS ALSO BEEN HELD IN THIS DECISION AFT ER REFERRING TO SEVERAL OTHER SUPREME COURT DECISIONS THAT WHAT IS TO BE DETERMIN ED BY THE OFFICER IN EXERCISE OF HIS POWER IS A QUESTION OF FACT, I.E. WHETHER OR NO T INCOME CHARGEABLE UNDER THE ACT M/S INDUSTRIAL PLANT & WASTE TREATMENT CORPORATION. 5 | P A G E CAN PROPERLY BE DEDUCED FROM THE BOOKS OF ACCOUNT A ND HE MUST DECIDE THE QUESTION WITH REFERENCE TO THE RELEVANT MATERIAL AN D IN ACCORDANCE WITH THE CORRECT PRINCIPLES. IN THE INSTANT CASE, IT CAN BE SEEN THA T ASSESSING OFFICER FAILED TO APPRECIATE THE METHOD OF ACCOUNTING REGULARLY FOLLO WED BY THE APPELLANT AND ACCEPTED BY THE HON. TRIBUNAL IN ITS OWN CASE. FURT HER, ASSESSING OFFICER FAILED TO APPRECIATE THE FACT THAT APPELLANT HAD VALUED CLOSI NG STOCK IN THE FORM OF 'WORK IN PROGRESS' AND THEREFORE ERRED IN COMING TO THE CONC LUSION THAT CLOSING STOCK WAS VALUED AT NIL BY THE APPELLANT. THUS, THE ASSESSING OFFICER GROSSLY ERRED IN UNDERSTANDING THE MATERIAL FACTS PLACED BEFORE HIM AND THIS CANNOT FORM GOOD GROUND FOR INVOKING THE PROVISIONS OF SECTION 145 O F THE ACT. THE AD HOC ADDITION MADE BY THE ASSESSING OFFICER IS THEREFORE DELETED AND THIS GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT. 4. BEFORE US, THE LD. DR HAS STRONGLY RELIED UPON T HE ORDER OF ASSESSING OFFICER. NONE HAS APPEARED ON BEHALF OF THE ASSESSEE, THEREF ORE, WE PROPOSE TO DECIDE THIS APPEAL EX PARTE . WE NOTE THAT THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 2005-06 HAS CONSIDERED AN IDENTICAL ISSUE VIDE ORDE R DATED 9 TH OCTOBER 2009 IN ITA NO. 5039/MUM/2008 IN PARA 3 AS UNDER:- WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PERUSED THE ORDERS OF ASSESSING OFFICER AND CIT(A). WE FIND THAT THESE A DVANCES WERE REQUIRED TO BE UTILIZED FOR THE PURPOSE OF EXECUTING CONTRACT AND AS PER THE TERMS OF THE CONTRACT, THE ADVANCES WERE ADJUSTED AS PER ACTUAL PROGRESS O F THE CONTRACT. THE CIT(A) HAS RECORDED THAT NO ADVANCE IS ADJUSTED IN FULL IN THE FIRST BILL FOR THE WORK DONE AS THE ENTIRE CONTRACT WAS NOT COMPLETE AND THAT IF THE CO NTRACT IS NOT COMPLETELY FULFILLED THE ASSESSEE HAS TO RETURN THE AMOUNT OF ADVANCES. WE FIND THAT THE CIT(A) HAS REPRODUCED A CHART SHOWING THAT THE AMOUNT OF ADVAN CES INCLUDES THE AMOUNT OF ADVANCE RECEIVED DURING THE EARLIER PREVIOUS YEARS ALSO. THIS SYSTEM OF ACCOUNTING OF THE ASSESSEE WAS FOLLOWED BY THE ASSESSEE FOR TH E LAST 35 YEARS I.E. FROM THE YEAR OF ITS INCEPTION AND ALL ALONG HAS BEEN ACCEPT ED BY THE DEPARTMENT. IN THESE FACTS OF THE CASE WE HOLD THAT THERE IS NOTHING WRO NG ON THE PART OF THE ASSESSEE IN NOT CONSIDERING THE AMOUNT OF RS. 1.48 CRORES REPRE SENTING WORK ADVANCES AS INCOME ACCRUING OR ARISING TO IT UNTIL A REGULAR BI LL FOR WORK DONE IS SUBMITTED AND ACCEPTED BY ITS CLIENTS. IN THIS VIEW OF THE MATTER WE HOLD THE ORDER OF THE CIT(A) IS CORRECT IN ACCEPTING THE METHOD OF ACCOUNTING FOLLO WED REGULARLY FOR THE LAST 35 YEARS AND IN DELETING THE ADDITION MADE BY ASSESSIN G OFFICER AND ACCORDINGLY THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. M/S INDUSTRIAL PLANT & WASTE TREATMENT CORPORATION. 6 | P A G E 5. THE ASSESSING OFFICER HAS ALSO PASSED A GIVING E FFECT ORDER DATED 20 TH JUNE 2008. FOLLOWING THE EARLIER ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE AND FURTHER THE METHOD OF ACCOUNTING REGULARLY FOLLOWED BY THE ASSESSEE AND ACCEPTED FOR THE EARLIER YEARS, WE DO NOT FIND ANY REASON TO INTERFE RE WITH THE ORDER OF CIT(A). IF THE REVENUE IS AGGRIEVED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005-06 THEN IT WAS OPEN TO THE ASSESSING OFFICER T O CHALLENGE THE ORDER BEFORE THE HONBLE HIGH COURT. IN THE ABSENCE OF ANY STAY OR R EVERSAL OF THE ORDER OF THE TRIBUNAL BY THE HONBLE HIGH COURT, THE CIT(A) HAS RIGHTLY FOLLOWED THE SAME. 5. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 30-7-2014 SD/- SD/- ( RAJENDRA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 30-7 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI