MAHARASHTRA TOURISM DEVELOPMENT CORPORATIN LTD, MUMBAI V. DCIT RG 3(2), MUMBAI

ITA 3555/MUM/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87896 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-12-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEENA SINGH
• Keywords: Additional evidence
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI D. KARUNAKAR RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 3555/MUM/2012 ASSESSMENT YEAR: 2007-08 MAHARASHTRA TOURISM DEVELOPMENT CORPORATION LIMITED. CDO HUTMENT, OPP. LIC YOGKSHEMA, NARIMAN POINT, MUMBAI- 400 020 PAN:AAACM 0712 G VS. DCIT RANGE- 3(2) MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : SHRI ANIL SATHE REVENUE BY : SMT. NEENA SINGH PANDEY DATE OF HEARING : 01 . 12 . 2014 DATE OF ORDER : 12 . 01 .201 5 O R D E R PER AMIT SHUKLA, JM: THE AFORESAID APPEAL HAS BEEN PREFERRED BY THE A SSESSEE AGAINST ORDER DATED 27.03.2012, PASSED BY THE LD.C IT-4, MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2007-08, MAINLY ON THE FOLLOWING GROUNDS:- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN ESTIMATING THE NET PROFIT IGNORING THE RESULTS AS R EFLECTED IN THE ACCOUNTS WHICH HAD BEEN SUBJECTED TO TAX AUDIT U/S 44AB AND CONSEQUENTLY ERRED IN PARTIALLY CONFIRMING THE ACTI ON OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF - ACCOU NTS INVOKING SECTION 145 OF THE ACT. ITA NO. 3555/MUM/2012 MAHARASHTRA TOURISM DEVELOPMENT CORPOR ATION LIMITED. ASSESSMENT YEAR: 2007-08 2 2. THE LEARNED COMMISSIONER (APPEALS) ERRED IN NOT ACCEPTING THE PROVISIONAL FINANCIAL STATEMENTS OF THE COMPANY FOR THE RELEVANT FINANCIAL YEAR AND NOT APPRECIATING THE FACT THAT T HE NON- COMPLETION OF STATUTORY AUDIT OF THE APPELLANT A P UBLIC SECTOR CORPORATION WAS BEYOND ITS CONTROL. 3. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN IGNORING THE FACT THAT THE AVERAGE NET PROFIT OF THE PAST YE ARS WAS 9.13%. 4. THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING TH E INTEREST CREDITED TO THE GRANT-IN-AID ACCOUNT OF RS.13,76,73 ,805/- AS INCOME CHARGEABLE TO TAX AND FAILED TO APPRECIATE T HE FACT THAT THE SAID INTEREST DID NOT ACCRUE OR BELONG TO THE A PPELLANT OWING TO THE PRINCIPLE OF OVER-RIDING TITLE. 5. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE THE LEARNED CIT (APPEALS) ERRED IN NOT APPRECIATING THA T INCOME BEING INTEREST ON UNUTILIZED GRANTS WAS IN THE NATURE OF CONTINGENT INCOME. 6. IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE FACT THAT THE INTEREST OF RS.13,76,73,805/- IS NOT ACCRUING OR TA XABLE IN THE HANDS OF THE APPELLANT CORPORATION, THE LEARNED COM MISSIONER (APPEALS) FAILED TO CONSIDER AND APPRECIATE THE CON TENTION THAT IF THE SAID INTEREST ON BANK FIXED DEPOSITS IS HELD TO BE TAXABLE, THE SAME OUGHT TO BE CHARGED UNDER THE HEAD' INCOME FRO M BUSINESS' INSTEAD OF 'INCOME FROM OTHER SOURCE. GROUND NO. 6 HAS BEEN RAISED AS ADDITIONAL GROUND, FOR WHICH SEPARATE PETITION FOR ADMISSION OF THE SAID GROUND HAS BEEN FILED BY THE ASSESSEE VIDE LETTER DATED 05.10.2011. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE C ORPORATION IS A STATE GOVERNMENT UNDERTAKING, WHEREIN 100% STAKE IS OWNED BY THE GOVERNMENT OF MAHARASHTRA. IT IS MAINLY ENGAGED IN THE BUSINESS OF TOURISM AND ALLIED ACTIVITIES. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, ON THE PERUSAL OF THE TAX AUDIT REPORT 44AB, THE ASSESSING ITA NO. 3555/MUM/2012 MAHARASHTRA TOURISM DEVELOPMENT CORPOR ATION LIMITED. ASSESSMENT YEAR: 2007-08 3 OFFICER NOTED THAT, FOLLOWING OBSERVATIONS AND COMM ENTS WERE MADE BY THE AUDITORS:- (I) THE STATUTORY AUDIT HAS NOT BEEN COMPLETED SIN CE F.Y. 2003- 04 & HENCE OPENING BALANCES ARE SUBJECT TO FINALIZA TION. (II) RELEVANT PROVISIONS OF COMPANIES ACT & ACCOUN TING STANDARDS AS PRESCRIBED BY ICAA HAVE NOT BEEN STRIC TLY FOLLOWED. (III) THE RECORDS OF REGIONAL OFFICE WERE NOT AVAIL ABLE FOR VERIFICATION HENCE UNABLE TO COMMENT ON THE SAME. (IV) THE IMPACT OF OBSERVATIONS I TO III ABOVE ON B ALANCE SHEET AND PROFIT AND LOSS ACCOUNT IS UNASCERTAINABLE. BALANCE SHEET AND THE P&L ACCOUNT FILED ALONG WITH THE RETURN OF INCOME WAS ALSO PROVISIONAL. IN RESPONSE TO THE SHOW CAUSE NOTICE AS TO WHY PROFIT SHOULD NOT BE ESTIMATED @ 30% GROSS RECEIPTS , THE ASSESSEE SUBMITTED AS UNDER:- (A) WE ARE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTI NG CONSISTENTLY. ALSO THE ACCOUNTING STANDARDS AS NOTI FIED IN THE OFFICIAL GAZETTE FROM TIME TO TIME UNDER SECTION 14 5 OF THE INCOME TAX ACT, 1961 ARE BEING COMPLIED WITH TO THE EXTENT POSSIBLE IN PREPARATION OF ACCOUNTS. (B) WE RESPECTFULLY SUBMIT FURTHER THAT OUR ORGANIZ ATION IS A BODY INCORPORATED WHERE IN 100% STAKE IS OWNED BY THE ST ATE OF MAHARASHTRA. WE ARE SUBJECTED TO STATUTORY AUDIT AS WELL AS AUDIT BY THE COMPTROLLER AND AUDITOR GENERAL OF INDIA. OU R STATUTORY AUDIT AND AG AUDIT ARE COMPLETED ONLY UP TO ASSESSM ENT YEAR 2004-05. APPOINTMENT OF STATUTORY AUDITORS IS DONE WITH THE APPROVAL OF STATE GOVERNMENT, HENCE THE AUTHORITY I S NOT WITH THE CORPORATION. AS STATUTORY AUDITS FOR PREVIOUS PERIO D ARE PENDING THE FINANCIAL STATEMENTS ARE TERMED AS PROVISIONAL. HOWEVER, ARE RECEIPTS & PAYMENTS OF UNITS/REGIONS & HOWEVER, ARE SUBJECTED TO AUDIT UNDER SECTION 44AB OF THE INCOME TAX ACT, 196 1. WE HAVE BEEN ASSESSED YEAR TO YEAR ON THE PROVISIONAL FINAN CIALS WITH TAX AUDIT UNDER SECTION 44AB OF THE INCOME TAX ACT 1961 . THEREFORE, WE RESPECTFULLY SUBMIT THAT THE ASSESSMENT SHOULD B E DONE ON THE BASIS OF PROVISIONAL FINANCIAL STATEMENTS FILED . HENCE, WE SUBMIT THAT THE ASSESSMENT SHOULD BE DONE ON THE BASIS OF PROVISIONAL FINANCIAL STATEMENTS. ITA NO. 3555/MUM/2012 MAHARASHTRA TOURISM DEVELOPMENT CORPOR ATION LIMITED. ASSESSMENT YEAR: 2007-08 4 3. THE ASSESSING OFFICER HELD THAT IN ABSENCE OF ST ATUTORY AUDIT REPORT AND PROPER AUDITED BALANCE SHEET AND P&L ACCOUNT, T HE ASSESSEES INCOME CANNOT BE PROPERLY DETERMINED, THEREFORE BOO K RESULTS OF THE ASSESSEE CANNOT BE ACCEPTED. HENCE HE REJECTED THE BOOKS OF ACCOUNT. THE ASSESSING OFFICER THEN TOOK COMPARABLE CASE OF M/S. PIEM HOTEL WHO HAVE SHOWN NET PROFIT OF 29.11% AND ON THAT BASIS T HE ASSESSING OFFICER ESTIMATED THE INCOME BY TAKING NET PROFIT @ 30% OF THE GROSS RECEIPTS OF RS.210,386,908.49 AND THEREBY ESTIMATING THE INC OME AT RS.6,31,16,070/-. FURTHER THE ASSESSING OFFICER NOT ED THAT ASSESSEE HAS EARNED INTEREST OF RS.13,76,73,805/- WHICH HAS NOT BEEN OFFERED FOR TAXATION AS INCOME FROM OTHER SOURCES BUT HAS BEEN CREDITED TO GRANT-IN- AID ACCOUNT IN THE BALANCE SHEET. THE ASSESSEES EX PLANATION IN THIS REGARD BEFORE THE AO WAS AS UNDER- CORPORATION HAS PARKED UNUTILIZED AMOUNTS UNDER VA RIOUS GRANT RECEIVED IN FIXED DEPOSITS IN BANKS. AS PER THE OFF ICE MEMORANDUM RECEIVED FROM MINISTRY OF TOURISM, GOVER NMENT OF INDIA THE INTEREST ACCRUALS ON SAID DEPOSITS CAN BE USED ONLY FOR THE PROJECTS FOR WHICH GRANTS HAVE BEEN RECEIVED. T HEREFORE, THE INTEREST EARNED IS NOT IN THE NATURE OF INCOME BUT IT IS PART AND PARCEL OF GRANTS ONLY. THEREFORE, THE SUCH INTEREST EARNED RS.13,76,73,805/- HAS BEEN CREDITED TO GRANT ACCOUN T. HOWEVER, THE ASSESSING OFFICER REJECTED THE ASSESSE ES CONTENTION AND ADDED THE SAME AS INCOME FROM OTHER SOURCES. 4. BEFORE THE LD.CIT(A) THE ASSESSEE FILED DETAILED SUBMISSIONS AS TO WHY NET PROFIT @ OF 30% CANNOT BE APPLIED AND INCOM E SHOULD BE ASSESSED ON THE BASIS OF AUDIT REPORT U/S 44AB AND PROVISIONAL P&L ACCOUNT. IT WAS ALSO SUBMITTED THAT THE AVERAGE PRO FIT RATE OF THE ASSESSEE FOR VARIOUS YEARS WAS 9.03%. HOWEVER, THE LD.CIT(A) REJECTED THE ASSESSEE SUBMISSIONS AND HELD THAT, 20% NET PRO FIT RATIO SHOULD BE ITA NO. 3555/MUM/2012 MAHARASHTRA TOURISM DEVELOPMENT CORPOR ATION LIMITED. ASSESSMENT YEAR: 2007-08 5 ESTIMATED ON THE GROSS RECEIPTS. ACCORDINGLY INCOME WAS ESTIMATED BY APPLYING THE NET PROFIT RATE OF 20%. 5. REGARDING TAXING OF INTEREST AS INCOME FROM OTHE R SOURCES, THE LD.CIT(A) HELD THAT THIS ISSUE HAS BEEN DECIDED AGA INST THE ASSESSEE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 20 06-07 AND ACCORDINGLY THE ASSESSEES GROUND ON THIS SCORE WAS DISMISSED. 6. BEFORE US, LEARNED COUNSEL, SHRI ANIL SATHE SUBM ITTED THAT, NOW THE STATUTORY AUDIT HAS BEEN CARRIED OUT BY CAG OF INDIA AND AUDITED BALANCE SHEET AND P&L ACCOUNT HAVE COME ON RECORD. THE SAME HAS BEEN FILED BEFORE THE TRIBUNAL AS ADDITIONAL EVIDEN CE ALONG WITH THE PETITION FOR ADMISSION OF ADDITIONAL EVIDENCE UNDER RULE 29. THUS, HE SUBMITTED THAT THE INCOME SHOULD BE NOW ASSESSED ON THE BASIS OF STATUTORY AUDIT REPORT, AS THE ONLY GROUND FOR ESTI MATING THE INCOME BY THE AUTHORITIES BELOW WAS THAT THE SAID STATUTORY A UDIT REPORT WAS NOT AVAILABLE. THEREFORE, THIS MATTER SHOULD BE RESTORE D BACK TO THE FILE OF THE AO. 7. REGARDING TAXABILITY OF INTEREST, LEARNED COUNSE L THOUGH ADMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL AG AINST THE ASSESSEE, HOWEVER, NOW NEW FACTS HAVE COME ON RECORD, WHICH G OES TO SHOW THAT THE ASSESSEES CONTENTION THAT THE INTEREST ACCRUED ON GRANT-IN-AID IS PART OF SAID AID ONLY AND IT IS NOT THE INCOME OF T HE ASSESSEE. THIS NEW FACT HE SUBMITTED IS IN FORM OF OFFICE MEMORANDUM D ATED 04.01.2014 ISSUED BY GOVERNMENT OF MAHARASHTRA, AND OTHER DOCU MENTS HAVE VITAL BEARING FOR ADJUDICATION OF THIS ISSUE. 8. LD. DR SUBMITTED THAT, SO FAR AS THE FIRST ISSUE REGARDING ESTIMATION OF NET PROFIT, THE MATTER CAN BE SENT BA CK TO THE FILE OF THE AO ITA NO. 3555/MUM/2012 MAHARASHTRA TOURISM DEVELOPMENT CORPOR ATION LIMITED. ASSESSMENT YEAR: 2007-08 6 TO CARRY OUT FRESH ASSESSMENT IN LIGHT OF STATUTORY AUDIT REPORT. HOWEVER, FOR THE SECOND ISSUE, HE SUBMITTED THAT THE DECISIO N OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEARS SHOULD BE FOLLOWED AS A MATTER OF PRECEDENCE. THE ADDITIONAL EVIDENCE IN THE FORM OF OFFICE MEMORANDUM WILL NOT CHANGE THE FACTS OF THE CASE AN D THE NATURE OF CONTROVERSY. THUS THE ORDER OF THE LD.CIT(A) ON THI S SCORE SHOULD BE CONFIRMED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AND ALSO THE MATERIAL PLACED ON RECORD. THE ASSESSEES INCOME FROM OPERATIONAL ACTIVITIES A ND OTHER INCOME HAVE BEEN ESTIMATED BY THE AO AS WELL AS LD.CIT(A), AFTE R REJECTING THE BOOK RESULTS ON THE GROUND THAT STATUTORY AUDIT HAS NOT BEEN COMPLETED. THE REASONS GIVEN BY THE ASSESSEE WAS THAT, THE AUDIT W AS TO BE CARRIED OUT BY THE COMPTROLLER & AUDITOR GENERAL OF INDIA AND S UCH AN AUDIT WAS COMPLETED ONLY UP TO A.Y. 2004-05 AT THE TIME OF AS SESSMENT. THERE IS NO OTHER AUTHORITY WHO CAN CARRY OUT STATUTORY AUDI T IN CASE OF ASSESSEE. THE ASSESSEE HAS APPOINTED HIS OWN CHARTERED ACCOUN TANTS FOR OBTAINING TAX AUDIT U/S 44AB AND PROVISIONAL BALANCE SHEET & P&L ACCOUNT, WHICH WERE FILED BEFORE THE AO. NOW THAT THE STATUTORY AU DIT REPORT IS AVAILABLE FOR THE RELEVANT FINANCIAL YEAR, WE ARE OF THE OPIN ION THAT SUCH AN EVIDENCE IS TO BE ADMITTED AND THIS ISSUE SHOULD BE RESTORED BACK TO THE FILE OF THE AO TO BE CONSIDER THE STATUTORY AUDIT R EPORT AND COMPLETE THE ASSESSMENT AFRESH TAKING INTO ACCOUNT SUCH REPORT. WE ARE ORDER ACCORDINGLY. THUS GROUND NO. 1 TO 3 IS TREATED AS A LLOWED FOR STATISTICAL PURPOSES. 10. SO FAR AS THE TAXABILITY OF INTEREST, THE SAME HAS BEEN ADMITTED BY THE PARTIES THAT, SIMILAR ISSUE HAS BEEN DECIDED AG AINST THE ASSESSEE BY ITA NO. 3555/MUM/2012 MAHARASHTRA TOURISM DEVELOPMENT CORPOR ATION LIMITED. ASSESSMENT YEAR: 2007-08 7 THE TRIBUNAL IN THE A.Y. 1996-97. THE ASSESSEES CA SE HAS BEEN THAT THE INTEREST WHICH HAS BEEN ACCRUED ON ACCOUNT OF FIXED DEPOSITS MADE OUT OF UNUTILIZED GRAND-IN-AID FUND, PARTAKS THE CHARAC TER OF GRANT-IN-AID ONLY. THAT IS WHY, THE SAID INTEREST HAS BEEN CREDI TED TO THE GRANT-IN-AID ACCOUNT. NOW BEFORE US, THE LD. COUNSEL HAS FILED O N OFFICE MEMORANDUM DATED 04.01.2014, ISSUED BY THE GOVERNME NT OF MAHARASHTRA CLARIFYING THAT INTEREST ON THE UTILIZE D GRANT IS TO BE CHARACTERIZED AS PART OF GRANT-IN-AID ONLY. SUCH A LETTER/MEMORANDUM HAS A VITAL BEARING ON THE ISSUE INVOLVED, THEREFOR E, WE ADMIT THE SAID ADDITIONAL GROUND AND REMIT THE MATTER BACK TO THE ASSESSING OFFICER TO TAKE COGNIZANCE OF SUCH AN EVIDENCE AND OTHER MATER IAL ON RECORD TO DECIDE THE ISSUE OF TAXABILITY OF INTEREST AFRESH A ND IN ACCORDANCE WITH LAW. THE ISSUE RAISED IN ADDITIONAL GROUND IS ALSO SET ASIDE TO THE FILE OF THE AO TO BE DECIDED AFRESH. IT IS NEEDLESS TO SAY THAT THE ASSESSING OFFICER WILL PROVIDE DUE AND SUFFICIENT OPPORTUNITY TO THE ASSESSEE TO REPRESENT ITS CASE. THUS GROUND NO. 4 TO 6 IS ALSO TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF JANUARY, 2015. SD/- SD/- (D.KARUNAKAR RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 12.01.2015 *SRIVASTAVA ITA NO. 3555/MUM/2012 MAHARASHTRA TOURISM DEVELOPMENT CORPOR ATION LIMITED. ASSESSMENT YEAR: 2007-08 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR B BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.