SALONI ESTATE P. LTD, MUMBAI V. JT CIT (OSD) RG 3(3), MUMBAI

ITA 3126/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55958 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 17-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P R TOPRANI
• Keywords: Depreciation; Opportunity of being heard; Additional evidence
• Section: 32

Judgement Text

1 SALONI ESTATE P LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI PRAMOD KUMAR, AM & SHRI VIJAY PAL RAO, JM ITA NO. 3126/MUM/2010 (ASST YEAR 2005-06) SALONI ESTATE P LTD AGRAWAL GOLDEN CHAMBERS PLOT NO. A 13 FUN REPUBLIC ROAD, BEHIND BALAJI STUDIO OPP LAXMI INDL.ESTATE ANDHERI (W) MUMBAI VS THE JT COMMR OF INCOME TAX (OSD) RANGE 3(3), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACS 7506G ASSESSEE BY SH P R TOPRANI REVENUE BY SH D S SUNDER SINGH DT.OF HEARING 17 TH NOV 2011 DT OF PRONOUNCEMENT 25 TH , NOV 2011 PER VIJAY PAL RAO, JM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 2.2.2010 OF THE CIT(A) FOR THE AY 2005-06. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS: 1) THE LEARNED CIT (A) HAS GROSSLY ERRED IN SUSTAIN ING DISALLOWANCES OF RS. 5,70,730/- PAID TO SWIFT CONSTRUCTION COMPLETIO N OF SIDDHIVINAYAK PROJECT. 2) THE LEARNED CIT (A) HAS FURTHER ERRED IN CONFIRM ING THE DISALLOWANCES MADE BY THE A.O. ESTIMATING LABOUR CHARGES 210/- / PER S Q. FT. WITHOUT ANY BASIS OR MATERIAL ON RECORD AS AGAINST 310/- PER SQ. FT. PAI D BY THE ASSESSEE. THEREFORE DISALLOWANCE OF EXPENSES I INCURRED TO THE EXTENT O F RS. 5, 70,730/- IS COMPLETELY UNJUSTIFIED. 3) THE LEARNED CIT (A) HAS FURTHER ERRED IN CONFIRM ING THE DISALLOWANCES OF RS. 1,17,885/- BEING EXPENSES INCURRED ON GREEN VAT IKA PROJECT WHICH WERE INCURRED DURING THE YEAR. THEREFORE DISALLOWANCES O N THE GROUND OF PRIOR PERIOD EXPENSES ARE COMPLETELY UNJUSTIFIED AND UNCA LLED FOR. 2 SALONI ESTATE P LTD 4) THE LEARNED CIT (A) HAS FURTHER ERRED IN SUSTAIN ING THE DISALLOWANCES ON MOTOR CAR DEPRECIATION TO THE EXTENT OF 1/4 TH AMOU NTING TO RS. 39,080/- WHICH IS UNJUSTIFIED AND UNCALLED FOR. 5) THE LEARNED CIT (A) HAS ERRED IN SUSTAINING DISA LLOWANCES OF RS. 30,000/- OUT OF MOTOR CAR EXPENSES ON AD-HOC BA SIS WHICH IS UNJUSTIFIED AND UNCALLED FOR. 3 GROUND NOS. 1 & 2 REGARDING DISALLOWANCE OF LABOU R CHARGES. 3.1 THE BRIEF FACTS IN THIS CASE ARE THAT DURING TH E YEAR THE APPELLANT COMPANY HAS CLAIMED LABOUR CHARGES AMOUNTING TO RS.47,81,91 0/- OUT OF WHICH RS.16,08,420/- HAS BEEN PAID TO ONE M/S. SWIFT CONSTRUCTION COMPAN Y FOR CARRYING OUT WORK FOR SIDDHIVINAYAK SOCIETY PROJECT. THE ASSESSING OFFICE R CALLED FOR DETAILS FROM THE ASSESSEE COMPANY AND IT WAS NOTICED BY THE ASSESSIN G OFFICER THAT THE PAYMENT WAS MADE RS.310 PER SQ.FT. THE ASSESSEE COMPANY W AS REQUIRED TO FURNISH THE BASIS FOR ARRIVING AT THE COST OF LABOUR RS.310 PER SQ. FT. THE ASSESSEE FAILED TO FURNISH ANY AGREEMENT ON THE BASIS OF WHICH THE LABOUR CHARGE S TO SWIFT CONSTRUCTION COMPANY WERE PAID . HOWEVER, THE ASSESSEE COMPANY P RODUCED A COPY OF AGREEMENTS ENTERED BETWEEN M/S. SHANKAR BUILDERS & DEVELOPERS, M/S. SALOONI ESTATE PVT. LTD., AND SHRI SIDDHIVINAYAK CO-OPERATI VE HOUSING SOCIETY AS PER WHICH CLAUSE 19 SPECIFIES WORK OF CONSTRUCTION TO BE CARR IED OUT @ RS.390/- PER SQ.FT. SINCE TOTAL CHARGES OF CONSTRUCTION WAS AGREED UPON RS. 390/- PER SQ.FT. THE ASSESSING OFFICER ESTIMATED THE LABOUR CHARGES AT RS.200/- P ER SQ.FT AND ACCORDINGLY DISALLOWED EXCESS LABOUR CHARGES AMOUNTING TO RS.5, 70,730/-. 3.2 BEFORE THE CIT(A), THE ASSESSEE HAS CONTENDED T HAT THE APPELLANT COMPANY HAD CONSTRUCTION WORK UPTO 4TH FLOOR OF THE BUILDIN G KNOWN AS SIDDHIVINAYAK @ RS.390/- PER SQ.FT AND IN TURN THE SAID WORK WAS AS SIGNED TO A SUB CONTRACTOR SWIFT 3 SALONI ESTATE P LTD CONSTRUCTION RS.310/- PER SQ.FT. THE SAID CHARGES INCLUDED LABOUR AS WELL AS MATERIAL COST. THE ASSESSING OFFICER HAS WRONGLY AS SUMED THAT THE CHARGES OF RS.310/- PER SQ.FT WERE PAID ONLY FOR LABOUR. 3.3 THE CIT(A) OBSERVED THAT THE CHARGES OF RS.16,0 8,420/- @ RS. 310/- PER SQ.FT CLAIMED TO HAVE BEEN PAID TO SWITFT CONSTRUCTION C OMPANY WAS DEBITED UNDER THE HEAD LABOUR CHARGES ON THE TOTAL COST OF CONSTRUCTI ON HAS BEEN AGREED @ 390/- PER SQ.FT., THIS APPEARS TO BE AN AFTERTHOUGHT. ACCORD INGLY, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BAY THE ASSESSING OFFICER BY ESTI MATING THE LABOUR CHARGES @ RS. 200/- PER SQ.FT. 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE ASSESSING OFFICER DISALLOWED PART OF THE LABOUR CHARGES BECAUSE OF TH E ASSESSEE FAILED TO PRODUCE THE CONTRACT/AGREEMENT. HE HAS FURTHER SUBMITTED TH AT THE ASSESSEE FILED A PETITION UNDER RULE 29 OF THE ITAT RULES ALONG WITH ADDITION AL EVIDENCES IN THE SHAPE OF AGREEMENT DATED 20.4.2010 WITH M/S SWIFT CONSTRUCTI ON COMPANY. THUS, THE LD AR URGED THAT THE ADDITIONAL EVIDENCE MAY BE ADMITTED IN SUPPORT OF THE CLAIM OF THE ASSESSEE. 4.1 ON THE OTHER HAND, THE LD DR HAS OBJECTED THE A DDITIONAL EVIDENCES PRODUCED BY THE ASSESSEE AT THIS STAGE AND SUBMITTE D THAT DESPITE SUFFICIENT OPPORTUNITIES, THE ASSESSEE DID NOT PRODUCE THE SAI D EVIDENCES BEFORE THE LOWER AUTHORITIES. 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER DISALLOWED THE LABOUR CHARGES BY ESTIMATING THE SAME AT RS. 200/- PER SQ.FT AGAINST THE CLAIM OF THE ASS ESSEE AT RS 310/- PER SQ.FT ON THE GROUND THAT THE ASSESSEE DID NOT PRODUCE ANY AGREEM ENT. IN FACT, THE CLAIM OF THE 4 SALONI ESTATE P LTD ASSESSEE IS THAT THE ASSESSEE ENTERED INTO AN AGREE MENT FOR CONSTRUCTION WITH M/S SHANKAR BUILDERS AND DEVELOPERS @ RS.390/- PER SQ F.FT AND IN TURN THE SAID WORK WAS GIVEN TO A SUB CONTRACTOR M/S SWIT CONSTRUCTION COM PANY @ RS.310/- PER SQ.FT. SINCE THE ASSESSEE FILED THE ADDITIONAL EVIDENCE IN THE S HAPE OF AGREEMENT BETWEEN THE ASSESSEE AND M/S SWIT CONSTRUCTION COMPANY, WHICH R EQUIRES VERIFICATION AND EXAMINATION. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE ASSESSING OFFICER FOR RECONSIDERATION AND ADJUDICATION OF THE SAME AFTER CONSIDERING THE EVIDENCES FILED BY THE ASSESSEE I.E. AGREEMENT DT 2 0.4.2010. NEEDLESS TO SAY THAT THE ASSESSEE MAY BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD BEFORE PASSING THE ORDER. 6 GROUND NO.3 IS REGARDING DISALLOWANCE OF EXPENDIT URE INCURRED ON GREEN VATIKA PROJECT. 6.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE H AD DEBITED EXPENDITURE OF RS.1,17,885/- PERTAINING TO GREEN VATIKA PROJECT IN THE P&L ACCOUNT. AT THE TIME OF ASSESSMENT PROCEEDINGS THE ASSESSEE ADMITTED BEFORE THE ASSESSING OFFICER THAT GREEN VATIKA PROJECT WAS COMPLETED IN PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2004-05.AS A RESULT, THE ASSESSING OFFICER DI SALLOWED THE SAID EXPENSES HOLDING THE SAME AS PRIOR PERIOD EXPENDITURE SINCE THE ASSE SSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. 6.2 ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF T HE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAS NOT PRODUCED ANY DOCUM ENTARY EVIDENCE TO SHOW THAT PART OF THE WORK REMAINS TO BE COMPLETED AFTER COMPLETION OF THE PROJECT. 7 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. IN SUPPORT OF THE CLAIM, THE ASSESSEE HAS NOT 5 SALONI ESTATE P LTD PRODUCED ANY MATERIAL EVEN BEFORE US. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AUTHORITIES. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DISMISSED. 8 GROUND NOS 4 & 5 REGARDING DISALLOWANCE OF MOTOR CAR DEPRECIATION AND MOTOR CAR EXPENSES. 9 WE HAVE HEARD THE LD AR OF THE ASSESSEE AS WELL A S THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFI CER DISALLOWED THE CLAIM OF DEPRECATION ON MOTOR CAR AS WELL AS EXPENDITURE ON MOTOR VEHICLE ON THE GROUND THAT THE CAR WAS PURCHASED IN THE NAME OF THE DIREC TOR OF THE ASSESSEE COMPANY AND THEREFORE, THE EXPENDITURE IS NOT FOR THE PURPO SE OF THE BUSINESS OF THE ASSESSEE. 9.1 ON APPEAL, THE CIT(A), THOUGH ACCEPTED THAT THE VEHICLE WAS USED FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE, THERE WAS A MOU BETWEEN THE DIRECTOR AND THE COMPANY TO UTILISE THE SAID VEHICLE FOR THE PU RPOSE OF THE BUSINESS OF THE ASSESSEE. HOWEVER, HE HAS DISALLOWED TH DEPRECIATI ON AND RS. 30,000/- OF EXPENSES ON MOTOR VEHICLE ON THE GROUND OF PERSONAL USE OF T HE VEHICLE. 10 THE AR OF THE ASSESSEE HAS SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN THE CASE O F ASHISH BUILDERS PVT LTD IN ITR NO. 5661/MUM/2006 PASSED ON 21.11.2008. 10.1 AT THE OUTSET, WE NOTE THAT THE TRIBUNAL IN TH E CASE OF ASHISH BUILDERS PVT LTD (SUPRA) HAS CONSIDERED AND ADJUDICATED SIMILAR ISS UE IN PARA 5 AS UNDER: 5 WE HAVE VERIFIED ORDERS AND HEARD THE LD. COUNSEL F OR THE REVENUE THE REASONS FOR DISALLOWANCE CITED BY THE AO IS THAT THE CARS WERE IN THE NAME OF ITS DIRECTORS, AND THE LOAN DOCUMENTS WERE ALSO IN T HE NAME OF ITS DIRECTORS ACCORDING TO THE A.O, THE FIRST AND FOREMOST REQUIREM ENT WAS THE OWNERSHIP 6 SALONI ESTATE P LTD OF THE ASSET AND SINCE THE ASSETS WERE OWNED BY THE DIRECTORS AND NOT THE ASSESSEE COMPANY, DEPRECIATION WAS NOT ALLOWABLE TH OUGH LD CIT(A) HAS STATED IN HIS ORDER THAT ASSESSEE FAILED TO PRODUCE AN Y EVIDENCE TO PROVE THAT VEHICLES WERE USED ONLY FOR THE PURPOSE OF BUSINESS, WE FIND THAT NO SUCH FINDING HAS BEEN GIVEN BY THE ASSESSING OFFICER. IN OTHER WORDS, ASSESSEES SUBMISSIONS THAT THESE CARS WERE USED FOR THE PURPOS E OF ITS BUSINESS HAS NOT BEEN REBUTTED IT IS NOT ESSENTIAL THAT FOR THE CLAIM OF DEPRECIATION ON MOTOR VEHICLES, ASSESSEE ITSELF SHOULD BE REGISTERED OWNER WHAT IS ESSENTIAL IS USE OF THE ASSET JUST BECAUSE ASSETS WERE HELD IN THE NAME OF ITS DIRECTORS, ASSESSEES CLAIM OF DEPRECIATION COULD NOT HAVE BEEN DISALLOWED OWNERSHIP SPECIFIED IN SEC. 32 OF THE ACT WILL ALSO INCLUDE BENEFICIAL OWN ERSHIP WHEN THE BENEFIT OF THE CARS WERE ENJOYED BY THE ASSESSEE COMPANY AND EX PENSES WERE ALSO BORNE BY IT, THE DEPRECIATION THEREON OUGHT NOT HAVE BEEN DISALLOWED. WE ARE FORTIFIED IN TAKING THIS VIEW BY THE DECISION O F THE HONBLE JURISDICTIONAL HIGH COURT IN CIT V/S. DILIP SINGH SARDAR SINGH BAGGA , 201 ITR 995. SAME VIEW HAS BEEN TAKEN BY HONBLE DELHI HIGH COURT ALSO IN CIT V/S. BASTI SUGAR MILLS LTD 257 ITR 88. THEREFORE, WE HAVE NO HESITATION IN D ELETING THE DISALLOWANCE OF RS.4,74,000/- ON THE DEPRECIATION CLAIM OF THE AS SESSEE WE ALSO FIND THAT, FOR THE DISALLOWANCES OF INTEREST EXPENSE OF RS 28,8 48/- AND DISALLOWANCE OF VEHICLE EXPENSES OF RS 25,000/ THE SAME REASONINGS A S FOR DISALLOWING THE DEPRECIATION HAVE BEEN CITED BY THE ASSESSING OFFICE R, FURTHER THE DISALLOWANCE ON ACCOUNT OF VEHICLE EXPENSES WAS DO NE ON AN ADHOC BASIS WHICH IN VIEW OF THE DECISION OF SAYATRON AND ENGG CO. LTD V/S CIT, 253 ITR 749 OF HONBLE GUJARAT HIGH COURT COULD NOT HAVE BEEN DONE, WHEN ASSESSEE WAS A DISTINCT ASSESSABLE ENTITY THEREFORE, THESE D ISALLOWANCES WHICH WERE ALSO NOT WARRANTED ON THE FACTS AND CIRCUMSTANCES O F THE CASE, STAND DELETED 10.2 SINCE THE ASSESSEE IS A COMPANY; THEREFORE, FO LLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF ASHISH BUILDERS PVT LTD I (SUPRA), W E DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY, DELETE THE DISALLOWANCE M ADE BY THE ASSESSING OFFICER. 11 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 25 TH , DAY OF NOV 2011. SD/ SD/ ( PRAMOD KUMAR ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED:25 TH , NOV 2011 RAJ* 7 SALONI ESTATE P LTD COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI