Shri Ashwin Kantilal Rawal, Ahmedabad V. The Income Tax Officer, Ward-9(4), Ahmedabad

ITA 314/AHD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 8406 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 08-06-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 08-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ANIL R SHAH; KINJAL SHAH ARS
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI S.S. GODARA, JUDICIAL MEMBER ./ ITA NO. 314/AHD/2016 / A.Y. 2011-12 SHRI ASHWIN KANTILAL RAWAL, PROP. OF VIJAY LAND INFRASTRUCTURE, B/H. SAMATHESHWAR MAHADEV, LAW GARDEN, ELLISBRDIGE, AHMEDABAD-380006 PAN : AAJPR 8752 R VS INCOME TAX OFFICER, WARD 9 (4), AHMEDABAD ! / (APPELLANT) '# ! / (RESPONDENT) BY ASSESSEE(S) : SHRI ANIL R. SHAH & KINJAL SHAH , ARS. BY REVENUE : SHRI PRASOON KABRA, SR DR / DATE OF HEARING : 03/04/2018 /DATE OF PRONOUNCEMENT : 23/04/2018 / O R D E R PER S.S. GODARA, JUDICIAL MEMBER :- THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2011-12 ARISES AGAINST CIT(A), AHMEDABAD-5S ORDER DATED 16.12.2015 PASSED IN CASE NO.CIT(A)- 5/ITO WD.9(4)/160/2014-15 IN PROCEEDINGS U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE RAISES TWO SUBSTANTIVE GROUNDS IN T HE INSTANT APPEAL. ITS FIRST GRIEVANCE IS THAT THE CIT(A) HAS ERRED IN CONFIRMING GP ADDITION OF RS.1,74,945/- @ 28.96% ON AUDA AND ELECTRIC CONNECT ION CHARGES EXPENSES OF RS.6,04,095/- IN LOWER APPELLATE PROCEE DINGS VIDE FOLLOWING DETAILED DISCUSSION:- 4.3. I HAVE CONSIDERED THE FACTS OF THE CASE AND S UBMISSION MADE BY THE APPELLANT. THE AO HAS MADE ADDITION OF RS.6,71,481/ - BEING ADDITIONAL G.P. ON CONSTRUCTION ACTIVITY. THE AO HAS OBSERVED THAT IN THE WORKING OF WORK IN PROGRESS (WIP) OF CONSTRUCTION ACCOUNT THE ASSESSEE HAS NOT TAKEN ITA NO. 314/AHD/2016 SHRI ASHWIN KANTILAL RAWAL VS. ITO A.Y :- 2011-12 - 2 - ALL THE EXPENDITURE HAVING A DIRECT BEARING ON THE WIP TO ARRIVE AT THE VALUE OF WIP OF BUNGALOWS SOLD BY THE ASSESSEE TO H IS CLIENTS. OUT OF THE TOTAL DIRECT EXPENSES OF RS.10,72,396/-, THE ASSESS EE HAS CONSIDERED ONLY RS.5,75,860/- FOR WORKING OF THE WIP. AS NO SATISFA CTORY EXPLANATION GIVEN BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PRO CEEDINGS THE AO HAS CONSIDERED THE BALANCE AMOUNT OF DIRECT EXPENSES OF RS.4,96,536/- AND AMOUNT OF ELECTRIC CONNECTION CHARGES OF RS.1,07,55 9/- FOR WORKING OUT WIP. THE AO HAS RECALCULATE THE G.P. AND MADE THE A DDITION OF RS.6,71,481/-. 4.4. DURING THE COURSE OF APPELLATE PROCEEDINGS THE APPELLANT HAS CONTENDED THAT BOTH AUDA CHARGES OF RS.4,96,536/- AND ELECTRI C CONNECTION CHARGES OF RS.1,07,559/- ARE NOT FORMING PART OF CLOSING BA LANCE OF WIP OF BUILDING UNDER CONSTRUCTION BUT THE SAME ARE EXPENSES WHICH HAVE ACCRUED, ASCERTAIN AND QUANTIFY DURING THE YEAR ON THE PROJE CTS WHICH ARE COMPLETED. IT IS FURTHER CONTENDED THAT THE ASSESSEE IS FOLLOW ING PERCENTAGE COMPLETION METHOD FOR REVENUE RECOGNITION AND AS PER THIS METH OD ASSESSEE DEBITS EXPENSES TO ONGOING PROJECTS TO WIP AND REFLECTED I N THE BALANCE SHEET. THE AUDA CHARGES AND ELECTRIC CONNECTION CHARGES ARE AL READY FORMING PART OF WIP OF EARLIER YEARS OR YEAR TO YEAR BASIS AND ELEM ENT OF G.P. PERCENTAGE OF WIP OF THOSE YEARS IS ALREADY REFLECTED AS INCOME O F THE RESPECTIVE YEARS. 4.5. THE FACTS OF THE CASE AND THE SUBMISSIONS OF T HE APPELLANT ARE CONSIDERED. THE FINDING OF THE AO IS CORRECT THAT A UDA CHARGES AND ELECTRICITY EXPENSES HAVE A DIRECT BEARING ON THE W IP. THE CONTENTION OF THE APPELLANT THAT THESE CHARGES HAVE ALREADY FORMING P ART OF WIP OF EARLIER YEARS AND G.P. ON THESE HAVE ALREADY REFLECTED AS I NCOME OF THE RESPECTIVE YEARS IS NOT VERIFIABLE. THEREFORE, THE ACTION OF T HE A.O IS CORRECT. IN THE ALTERNATIVE THE APPELLANT HAS CONTENDED THAT THERE IS A MISTAKE IN QUANTIFYING THE AMOUNT OF THE ADDITION AT RS.6,71,4 81/-. THE APPELLANT HAS CONTENDED THAT THE AO HAS HELD THAT THE G.P. @28.96 % SHOULD ALSO BE APPLIED TO EXPENSES SUCH AS AUDA CHARGES OF RS.4,96 ,436/- AND ELECTRIC CONNECTION CHARGES OF RS. 1,07,5597- AGGREGATING TO RS.6,04,095/-. THE APPELLANT HAS SUBMITTED THAT APPLYING G.P @28.96% O N THE AGGREGATE AMOUNT OF RS.6,04,095/- WORKS OUT TO RS.1,74,945/- AND NOT RS.6,71,481/- AS QUANTIFIED BY THE A.O. THE APPELLANT HAS CONTEND ED THAT THIS MISTAKE HAVE CREPT IN BECAUSE THE AO HAS INCLUDED G.P. OF R S.4,99,790/-, WHICH IS ALREADY REFLECTED IN PROFIT AND LOSS ACCOUNT WHILE MAKING THE ADDITION. THE CONTENTION OF THE APPELLANT IS FOUND CORRECT AS THE AO HAS MADE DOUBLE ADDITION OF G.P. OF RS.4,99,790/- WHICH IS CLEAR FR OM THE ASSESSMENT ORDER ITSELF. THEREFORE, THE AO IS DIRECTED TO RESTRICT T HE ADDITION TO RS.1,74,945/-. THUS THE GROUND OF APPEAL IS PARTLY ALLOWED. ITA NO. 314/AHD/2016 SHRI ASHWIN KANTILAL RAWAL VS. ITO A.Y :- 2011-12 - 3 - 3. LEARNED AUTHORIZED REPRESENTATIVE VEHEMENTLY CON TENDS DURING THE COURSE OF HEARING THAT THE ASSESSEE HAS HIMSELF CHO SEN NOT TO CLAIM THE IMPUGNED DIRECT EXPENDITURE AND THEREFORE, BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AS WELL AS ON FACTS IN MAKING THE IMPUGNED ADDITION AS REDUCED TO RS.1,74,945/- IN LOWER APPELLATE PROCEED INGS. LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTS THE I MPUGNED ADDITION. 4. WE NOTICE IN THIS BACKDROP OF THE CASE THAT CIT( A) HAS ALREADY ACCEPTED ASSESSEES ALTERNATIVE PLEA OF RE-QUANTIFI CATION OF THE IMPUGNED ADDITION IN ORDER TO AVOID DOUBLE ADDITION. IT HAS FURTHER COME ON RECORD THAT LEARNED LOWER APPELLATE AUTHORITY HAS TAKEN IN TO ACCOUNT THE RELEVANT FIGURES WHICH ALREADY STOOD ADDED AS INCOME IN PREC EDING ASSESSMENT YEAR. IT IS THUS A CASE OF CONSISTENCY IN THE IMPU GNED ASSESSMENT YEAR VIS- -VIS EARLIER ASSESSMENT YEAR QUA THE VERY ISSUE. THERE IS NO MATERIAL ON RECORD WHICH COULD REBUT THIS FACTUAL POSITION. WE THEREFORE FIND CIT(A)S APPROACH TO BE CONSISTENT IN RE-COMPUTATION OF THE IMPUGNED ADDITION AS PER THE RELEVANT FACTS IN PRECEDING ASSESSMENT YEAR . THE ASSESSEE THEREFORE FAILS IN HIS FORMER SUBSTANTIVE GROUND. 5. WE ARE NOW LEFT WITH ASSESSEES LATTER ISSUE OF CORRECTNESS OF SECTION 14A READ WITH RULE 89D OF DISALLOWANCE OF RS.1,27,5 49/- QUA ITS EXEMPT INCOME OF RS.63,889/- . 6. THERE IS NO DISPUTE ABOUT THE FACT THAT BOTH THE LOWER AUTHORITIES HAVE APPLIED RULE 8D WHILST COMPUTING THE IMPUGNED DISALLOWANCE AS APPLICABLE FROM ASSESSMENT YEAR 2008-09 ONWARDS. TH E HONBLE APEX COURT RECENT DECISION IN MAXOPP INVESTMENT LTD. VS. CIT, [2018] 91 TAXMANN.COM 154 (SC), SETTLES THE LAW THAT RELEVANT EXPENDITURE IN CASE OF EXEMPT INCOME HAS TO BE APPORTIONED BETWEEN TAXABLE AND NO N-TAXABLE INCOME. ITA NO. 314/AHD/2016 SHRI ASHWIN KANTILAL RAWAL VS. ITO A.Y :- 2011-12 - 4 - THE ASSESSEES ARGUMENTS THEREFORE CHALLENGING APPL ICATION OF RULE 8D IN PRINCIPLE IN LIGHT OF SECTION 14A ARE REJECTED. L EARNED COUNSEL THEREAFTER RAISES ALTERNATIVE PLEA IN VIEW OF THE HONBLE DELH I HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD VS. CIT THAT SUCH DISALL OWANCE CANNOT EXCEED THE ACTUAL EXEMPT INCOME FIGURE. REVENUE FAILS TO REBUT THIS LEGAL POSITION. WE THEREFORE RESTRICT THE IMPUGNED DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME AMOUNT OF RS.63,889/- AND DELETE THE REMAINI NG DISALLOWANCE COMPONENT OUT OF RS.1,27,549/-. ASSESSEES LATTER INSTANT SUBSTANTIVE GROUND IS THEREFORE PARTLY ACCEPTED. THIS ASSESSEE S APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 23 RD APRIL, 2018 AT AHMEDABAD SD/- SD/- (N.K. BILLAIYA) ACCOUNTANT MEMBER (S.S. GODARA) JUDICIAL MEMBER AHMEDABAD; DATED 23/04/2018 *BT & '() *) / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ' $ / CONCERNED CIT 4. $ ( ) / THE CIT(A) 5. ' **' , ' , / DR, ITAT, AHMEDABAD 6. / / GUARD FILE. / BY ORDER, TRUE COPY / (DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD