M/S MOHD. CONST. CO., Kota V. ACIT, Kota

ITA 389/JPR/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2155 (ITAT-JAIPUR)
• Duration Of Justice: 5 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA SINGH
• Keywords: Business income; Depreciation
• Section: 43B

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 389/JP/2012 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2008-2009 M/S MOHD. CONST. CO., 5-B-18 VIGYAN NAGAR, KOTA. CUKE VS. THE ACIT, CIRCLE- 1, KOTA LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACFM0470E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 172/JP/2012 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2008-2009 THE ACIT CIRCLE-1 KOTA CUKE VS. M/S MOHD. CONSTRUCTION CO., 5-B-18, VIGYAN NAGAR, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AACFM0470E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI MAHENDRA GARGIEYA (ADV.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI RAJENDRA SINGH LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 30/03/2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 25/04/2017 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. ITA NO. 389 &172/JP/2012 M/S MOHD. CONSTRUCTION CO. VS. ACIT CIRCLE-1, KOTA 2 THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF LD. CIT (A), KOTA DATED 29.12. 2011 FOR A.Y. 2008- 09. THE EFFECTIVE GROUNDS OF THE APPEALS ARE AS UND ER:- 389/JP/12 (GROUND OF ASSESSEES APPEAL):- 1. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LEARNED ASSESSING OFFICER HAS ERRED IN INVOKING TH E PROVISION OF SECTION 145(3) OF THE I.T. ACT AND IN REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT AND THE HONBLE CIT ( APP EALS) HAS FURTHER ERRED IN CONFIRMING THE INVOCATION OF THE P ROVISIONS OF 145(3) AND THE REJECTION OF THE BOOKS OF ACCOUNTS O F THE APPELLANT. 2. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LEARNED ASSESSING OFFICER WAS ERRED IN CONSIDERING THE SALES-TAX REFUND SEPARATELY FROM THE OPERATING PROFIT AND FUR THER ERRED IN ADDING THE SAME OVER & ABOVE ESTIMATED INCOME OF TH E APPELLANT. THE HONBLE CIT (APPEALS) HAS FURTHER ERRED IN CONF IRMING THAT THE SALES TAX REFUND WAS TAXABLE U/S 41 OF THE INCO ME TAX ACT AND HAS NO BEARING ON THE COMPUTATION OF INCOME AND HAS TO BE CONSIDERED SEPARATELY. 3. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LEARNED ASSESSING OFFICER HAS ERRED IN ESTIMATING T HE NET PROFIT RATE @ 11% ON CONTRACT RECEIPTS ( SUBJECT TO DEPREC IATION ONLY) AND FURTHER ERRED IN SEPARATELY CONSIDERING THE S ALES TAX REFUND OF RS. 42,26,138/-. THE HONBLE CIT (APPEALS) HAS F URTHER ERRED IN RESTRICTING THE NET PROFIT RATE @ 8% ONLY ( SUBJECT TO DEPRECIATION AND INTEREST & REMUNERATION PAID TO PARTNERS) BY SE PARATELY CONSIDERED INTEREST INCOME OF RS. 52,09,524/- AND S ALES TAX REFUND OF RS. 42,26,138/-. ITA NO. 389 &172/JP/2012 M/S MOHD. CONSTRUCTION CO. VS. ACIT CIRCLE-1, KOTA 3 3172/JP/12 (GROUND OF REVENUES APPEAL):- (I) REDUCING THE NET PROFIT RATE FROM 11% TO 8% W ITHOUT ANY VALID BASIS; (II) REDUCING THE NET PROFIT RATE TO 8% DESPITE T HE FACT THAT THE LD. CIT(A) HAS JUSTIFIED THE ACTION OF THE AO F OR APPLYING THE PROVISIONS OF SECTION 145(3) OF THE I.T. ACT, 1961. 2. FIRSTLY REGARDING GROUND NO. 1 TAKEN BY THE ASS ESSEE IN ITS APPEAL, IT IS NOTED THAT THE GROUND WAS NOT PRESSED BEFORE THE LD. CIT(A) AND THE SAME WAS THUS DISMISSED. HENCE, THE SUBJECT GROUND IS DISMISSED IN LIMINE. 3. REGARDING GROUND NO. 2, BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE WAS IN RECEIPT OF RS. 24,26,138/- ON ACCOU NT OF SALES TAX REFUND. DURING THE YEAR UNDER CONSIDERATION, THE AO BROUGHT THE SAME TO TAX U/S 41(1) OF THE ACT WHICH WAS CONFIRMED BY THE LD. CIT (A). 3.1 DURING THE COURSE OF HEARING, THE LD. AR HAS SU BMITTED THAT THE SALES TAX REFUND WAS CREDITED TO THE SALES TAX A/C. THE COLLECTION OF THE SALES TAX WAS MADE BY THE AWARDER I.E. THE IRRIGATI ON DEPARTMENT AND WAS DEPOSITED ON OUR BEHALF WITH THE SALES TAX AUTH ORITIES. THE SAME WAS DEBITED IN THE SALES TAX A/C. IT IS ONLY THE NE T AMOUNT WHICH WAS TAKEN TO THE P&L A/C OF RS. 13,87,241/-. THE ENTIRE GROSS RECEIPTS INCLUDING SALES TAX HAS BEEN CONSIDERED IN THE P& L A/C. THUS, IT IS NOT A CORRECT FACT THAT THE SALES TAX OR ITS REFUND IS NOT CONSIDERED AT ALL. 3.2 IT WAS FURTHER SUBMITTED THAT SECTION 41(1) IS NOT APPLICABLE IN THE INSTANT CASE. A BARE READING OF THE PROVISION S UGGESTS THAT TO INVOKE ITA NO. 389 &172/JP/2012 M/S MOHD. CONSTRUCTION CO. VS. ACIT CIRCLE-1, KOTA 4 SEC. 41(1), THE ASSESSEE MUST HAVE BEEN ALLOWED ANY DEDUCTION IN PARTICULAR/SPECIFIC YEAR. HOWEVER, THE AO HAS NOT E VEN WHISPERED ANYTHING ON THIS ASPECT MUCH LESS ESTABLISHING THE EXISTENCE OF SUCH CONDITIONS. THEREFORE, INVOKING OF SEC. 41(1) IS CO MPLETELY OUT OF PICTURE. KINDLY REFER TO THE DECISION IN THE CASE O F CIT VS. BHAWAN VA PATH NIRMAN (BOHRA) & CO. 258 ITR 440 (RAJ). 3.3 IT WAS FURTHER SUBMITTED THAT BOTH THE AO AND C IT (A) HAVE SUMMARILY DISCUSSED THE FACTS BY SIMPLY REFERRING T O SECTION 41(1), AND MADE THE IMPUGNED ADDITION. THERE IS NO FINDING AT ALL RECORDED IN THE IMPUGNED ORDER AS TO IN WHICH PARTICULAR YEAR, THE SUBJECTED AMOUNT WAS ALLOWED AS A DEDUCTION SO AS TO INVOKE SECTION 41(1) OF THE ACT. THUS, AS HELD IN VARIOUS CASES IN ABSENCE OF SUCH C ATEGORICAL FINDING NO ADDITION COULD BE MADE. THE SITUATIONS OF APPLYING ADHOC NP RATE AFTER REJECTION OF ACCOUNTS WERE ALSO AVAILABLE IN THESE CASES. THEREFORE THE IMPUGNED ADDITION MAY KINDLY BE DELETED. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, REGARDING THE DECISIO N OF HONBLE RAJASTHAN HIGH COURT IN CASE OF BHAWAN VA PATH NIRMAN (SUPRA) , IT IS NOTED THAT IT WAS RENDERED IN THE CONTEXT OF FACTS WHERE THE ASSE SSEE HAS NOT OFFERED THE SALES TAX REFUND TO TAX THOUGH THE SAME WAS CRE DITED IN ITS PROFIT & LOSS ACCOUNT AND THE ASSESSING OFFICER BROUGHT THE SAME TO TAX BY INVOKING PROVISIONS OF SECTION 41 OF THE ACT. IN TH E INSTANT CASE, THE ASSESSEE HAS NOT ONLY CREDITED THE SALES TAX REFUN D IN ITS PROFIT AND LOSS ACCOUNT BUT AT THE SAME TIME, HAS DULY OFFERED THE SAME TO TAX IN ITS COMPUTATION OF INCOME AND THE RETURN OF INCOME FILE D FOR THE SUBJECT ASSESSMENT YEAR. HENCE, THE SAID DECISION DOES NOT SUPPORT THE CASE OF ITA NO. 389 &172/JP/2012 M/S MOHD. CONSTRUCTION CO. VS. ACIT CIRCLE-1, KOTA 5 THE ASSESSEE. HERE, THE QUESTION THAT ARISES FOR CONSIDERATION WHAT IS EXACT NATURE OF THE SALES TAX REFUND AND HOW THE SA ME SHOULD BE TREATED FOR TAX PURPOSES AND UNDER WHICH HEAD OF IN COME. THE SALES TAX IS PAYABLE ON THE SALES AFFECTED BY THE ASSESSEE AN D THE SAME IS CONSIDERED AS DEEMED BUSINESS RECEIPTS AND THE SAME IS ELIGIBLE AS A BUSINESS DEDUCTION IN THE YEAR OF PAYMENT IN TERMS OF SECTION 43B OF THE ACT. WHERE THE SALES TAX WHICH WAS PAID EARLIE R IS REFUNDED TO THE ASSESSEE IN A SUBSEQUENT FINANCIAL YEAR, IT WILL TH EREFORE FORM PART OF THE BUSINESS RECEIPTS WHICH IS ASSESSABLE UNDER THE HEAD PROFIT AND LOSS ACCOUNT OF BUSINESS AND PROFESSION. IN THE IN STANT CASE, WHERE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED AND THE N.P. RA TE HAS BEEN ESTIMATED BY THE ASSESSING OFFICER, THE SAID RECEIP TS ON ACCOUNTS OF SALES TAX REFUND HAVE TO BE TAKEN INTO CONSIDERATIO N WHILE DETERMINING THE TOTAL BUSINESS RECEIPTS/TURNOVER AND THE ESTIMA TION OF N.P RATE HAS TO BE DETERMINED ACCORDINGLY. WE ARE THEREFORE OF THE VIEW THAT THE AO WAS NOT CORRECT IN TREATING SALES TAX REFUND SEPARA TELY WHILE DETERMINING THE N.P RATE. IN THE RESULT THE GROUND NO. 2 TAKEN BY THE ASSESSES IS ALLOWED. 5. NOW COMING TO GROUND NO. 3 OF THE ASSESSEES APP EAL AND THE TWO GROUNDS OF APPEAL TAKEN BY THE REVENUE, THERE A RE TWO ISSUES THAT ARISES FOR CONSIDERATION. THE FIRST ISSUE IS REGAR DING INTEREST OF RS. 52,09,524/- WHETHER THE SAME HAS TO BE TREATED AS INCOME FROM OTHER SOURCES AND AS BUSINESS INCOME AND SECONDLY, THE ISSUE REGARDING TRADING ADDITION OF RS. 5,54,133/- MADE BY THE ASSE SSING OFFICER BY ESTIMATING N.P. RATE. ITA NO. 389 &172/JP/2012 M/S MOHD. CONSTRUCTION CO. VS. ACIT CIRCLE-1, KOTA 6 5.1 REGARDING THE FIRST ISSUE, THE LD. CIT (A) HAS NOTED THAT THE ASSESSEE AS SHOWN INTEREST RECEIPT OF RS. 52,09524/ - IS AS UNDER:- (A) INTEREST ON INCOME TAX REFUND RS. 60,491/- (B) INTEREST ON SALES TAX REFUND RS. 7,69,785/- (C) FDR INTEREST RS. 43,79,248/- ----------------------------- TOTAL RS 52,09,248/- ------------------------------- WHEN ASKED WHY THE INTEREST SHOULD NOT BE TAXED AS INCOME FROM OTHER SOURCES, THE ASSESSEE STATED THAT THESE FDRS WERE P LEDGED WITH THE BANKS TO OBTAIN BANK GUARANTEE WHICH WERE NECESSARI LY REQUIRED TO BE FURNISHED TO THE VARIOUS AWARDERS/ GOVERNMENT DEPAR TMENTS. AS PER THEIR REQUIREMENT, THE APPELLANT WAS BOUND TO FURNI SH PERFORMANCE SECURITY/GUARANTEE. IN ABSENCE, THE ASSESSEE COULD NOT HAVE BEGGED CONTRACTS THEREFORE, THE INTEREST INCOME SHOULD BE TREATED AS INCOME FROM BUSINESS. THE LD. CIT (A) HOWEVER REJECTED THE ASSESSEES CONTENTION AND TREATED INTEREST RECEIPT OF 52,09,52 4/- AS INCOME FROM OTHER SOURCES. HENCE THIS GROUND. 5.2. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE GOVERNMENT DEPARTMENT WHO AWARDED THE VARIOUS SUBJE CTED CONTRACTS, AS A MATTER OF STANDARD PRACTICE REQUIREMENT THE CO NTRACTOR TO FURNISH THEM THE BANK GUARANTEE AS SECURITY. THE CONTRACTOR -ASSESSEE, IN TURN HAD TO PLEDGE FDRS OF THE REQUISITES AMOUNT WITH TH E CONCERNED ISSUING BANK FOR OBTAINING SUCH GUARANTEE IN FAVOUR OF THE GOVERNMENT DEPARTMENT. IN ABSENCE OF THE PLACEMENTS OF SUCH GU ARANTEE ETC., THE ASSESSEE COULD NOT HAVE PROCEEDED FURTHER TO EXECUT E THE CONTRACTS AWARDED BY THE GOVERNMENT DEPARTMENT. THIS WAY, IT WAS AN OPERATION ITA NO. 389 &172/JP/2012 M/S MOHD. CONSTRUCTION CO. VS. ACIT CIRCLE-1, KOTA 7 AND COMPELLING NECESSITY ON THE PART OF THE ASSESSE E CONTRACTOR TO GET THE FDRS PREPARED AND PLEDGED WITH THE CONCERNED BA NKS. SUCH REQUIREMENT GOES TO THE VERY ROOT. IN OTHER WORDS, WITHOUT PLEDGING FDRS, THE CONTRACTOR COULD NOT HAVE PROCEEDED TO EX ECUTE THE CONTRACTS AWARDED IN HIS FAVOUR. THUS, PLEDGING OF FDRS/ NSC IS A CONDITION PRECEDENT TO HAVE SUCH BUSINESS AND TO RUN THE SAME . NEEDLESS TO SAY THAT IN ABSENCE OF THE FDRS, THE ASSESSEE WOULD NO T HAVE GOT THE CONTRACT BUSINESS AND NO SUCH CONTRACT RECEIPTS WOU LD HAVE BEEN THERE WHICH ARE BEING TAXED AND WHICH ARE UNDER DISPUTE. THE FACTS SUBMITTED TO THE AO AND THE LD CIT(A) ARE NEITHER D ENIED NOR REBUTTED. 5.3 IT WAS FURTHER SUBMITTED THAT THE ASSESSEE WAS NOT HAVING SURPLUS FUNDS FROM WHICH, INVESTMENT TOWARDS FDR WERE MADE IN AS MUCH AS THE APPELLANT TOOK LOAN AND CREDIT FACILITIES FROM THE BANK AND FROM THOSE FUNDS ONLY, IT HAD OBTAINED FDRS. THE LD. CI T (A) NEVER DENIED THAT THE APPELLANT DID NOT INVEST/USE ANY SURPLUS F UND, WHICH OTHERWISE, THE APPELLANT WAS NOT HAVING NOR THE LD. CIT (A) ES TABLISHED NOR EVEN ALLEGED SO. THE ENTIRE CAPITAL OF RS. 3.65 CR. WAS COMPLETELY UTILIZED IN THE ACQUISITION OF FIXED ASSETS OF RS. 5.97 CR. AS PER AUDITED BALANCE SHEET. (PB 17). THE FDRS SO PLEDGED CAME OUT OF T HE SECURED AND UNSECURED LOANS OF RS. 7.3 CR. AND RS. 1.02 CR. RES PECTIVELY. 5.4. FURTHER, THE ASSESSEE HAS RELIED ON DECISION O F M/S MAYA CONSTRUCTION IN ITA NO. 510/JU/2013 DATED 18.07.201 4 AND IN ITA NO. 442/JU/2014 DATED 23.12.2015. FURTHER, THE ASSESSEE HAS RELIED ON HONBLE DELHI HIGH COURT IN CASE OF CIT VS. JAYPEE DSC VENTURES LTD (2011) 53 DTR 305 (DEL) AND CIT VS. K & CO. 88 DTR 166 (DEL). ITA NO. 389 &172/JP/2012 M/S MOHD. CONSTRUCTION CO. VS. ACIT CIRCLE-1, KOTA 8 5.5 IT WAS FURTHER SUBMITTED EVEN IN THE PAST, THE DEPARTMENT HAS BEEN ASSESSING SUCH INCOME AS BUSINESS INCOME AND T HERE IS NO JUSTIFICATION FOR THE DEPARTURE WHICH HAS BEEN MADE THIS YEAR. 5.6 WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, REGARDING INTEREST O N INCOME TAX REFUND AND INTEREST ON SALES TAX REFUND, THE SAME HAS RIGH TLY BEEN TREATED BY THE LD. CIT (A) AS INCOME FROM OTHER SOURCES AND WE DONOT SEE ANY INFIRMITY IN THE SAME. REGARDING INTEREST ON FDR, I T IS NOTED THAT THE FDRS WERE PLACED WITH THE BANKS TO OBTAIN BANK GUAR ANTEE WHICH WAS NECESSARILY REQUIRED TO BE FURNISHED TO THE VARIOUS GOVERNMENT DEPARTMENT AND IN ABSENCE OF SUCH BANK GUARANTEE, T HE ASSESSEE COULD NOT HAVE PROCEEDED WITH THE EXECUTION OF CONTRACTS WITH THE GOVERNMENT DEPARTMENT. FURTHER, THERE IS NO FINDIN G THAT THE SURPLUS FUNDS HAVE BEEN INVESTED BY THE ASSESSEE IN THE FDR S. ANY INTEREST ON SUCH FDR, THEREFORE, MUST BE TREATED AS INEXTRICABL Y LINKED WITH THE BUSINESS OF THE ASSESSEE AND THEREFORE TO BE TREATE D AS BUSINESS INCOME AND NOT AS INCOME FROM OTHER SOURCES. IT IS NOTED THAT SIMILAR VIEW HAS BEEN TAKEN BY CO-ORDINATE BENCH IN CASE OF M/S MAYA CONSTRUCTION (SUPRA). THE CONTENTION THE LD. AR IS THEREFORE ACCEPTED AND THE ORDER OF LD CIT(A) TO THIS EXTENT STAND MOD IFIED. 5.7 NOW COMING TO THE REMAINING TRADITION ADDITION OF RS. 5,54,133, IT IS NOTED THAT AFTER TAKING INTO CONSIDERATION TH E SALES TAX REFUND, INTEREST ON FDR AS BUSINESS INCOME, THE N.P. RATE D ECLARED BY THE ASSESSEE IS BETTER THAN THE N.P. RATE DECLARED IN T HE EARLIER YEARS. ITA NO. 389 &172/JP/2012 M/S MOHD. CONSTRUCTION CO. VS. ACIT CIRCLE-1, KOTA 9 FURTHER, UNLIKE A.Y. 2006-07 WHEREIN SPECIFIC INSTA NCES HAVE BEEN HIGHLIGHTED BY THE LD. CIT (A) IN ESTIMATING THE N. P. RATE, NO SUCH INSTANCES WHICH FORM THE BASIS OF REASONABLE ESTIM ATION IS SEEN IN THE YEAR UNDER CONSIDERATION. TAKEN INTO CONSIDERATION , ALL THE FACTS AND CIRCUMSTANCES OF THE CASE, THE TRADING ADDITION OF RS. 5,54,133/- MADE BY THE ASSESSING OFFICER IS HEREBY DELETED. 5.8 IN THE RESULT, THE GROUND NO. 3 TAKEN BY THE AS SESSEE AND THE GROUNDS IN THE DEPARTMENTS APPEAL ARE PARTLY ALLOW ED. IN THE RESULT, THE APPEAL OF THE ASSESSEE AND DEP ARTMENT ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25/04/2017 SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 25/04/2017. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S MOHD. CONSTRUCTION CO. 18 VIGYAN NAGAR, KOTA 2. IZR;FKHZ@ THE RESPONDENT- ACIT ,CIRLE-1, KOTA. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 389&172/JP/2012} ITA NO. 389 &172/JP/2012 M/S MOHD. CONSTRUCTION CO. VS. ACIT CIRCLE-1, KOTA 10 VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR