M/s. Ketan Construction Co., RAJKOT-GUJARAT V. The Deputy Commissioner of Income Tax, Circle-1, RAJKOT-GUJARAT

ITA 400/RJT/2013

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6830 (ITAT-RAJKOT)
• Duration Of Justice: 4 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2004-2005
• Appeal Filed On: 28-10-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NAMITA KHURANA
• Assessee Lawyers: DM RINDANI
• Keywords: Corroborative evidences; Royalty expenses
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH , RAJKOT BEFORE: SHRI RAJPAL YADAV, JUDICIAL MEMBER AND S H RI AMARJIT SINGH , ACCOUNTANT MEMBER [CONDUCTED THROUGH E - COURT AT AHMEDABAD] M/S. KETAN CONSTRUCTION LTD. KCL, AMIN MARG, RAJKOT PAN: AABCK5548H (APPELLANT) VS THE DCIT, CIRCLE - 1, RAJKOT (RESPONDENT) REVE NUE BY : S MT. NAMITA KHURANA , SR. D . R. ASSESSEE BY: S H RI D.M. RINDANI , A.R. DATE OF HEARING : 07 - 1 2 - 2 017 DATE OF PRONOUNCEMENT : 22 - 12 - 2 017 / O RDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THESE TWO APPEAL S FILED ASSESSEE FOR A.Y. 2004 - 05 & 2005 - 06 , AR ISE FROM ORDER O F THE CIT(A) - II, RAJKOT DATED 23 - 08 - 2013 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - I T A NO S . 400 & 401 / RJT /20 13 A . Y. 200 4 - 05 & 2005 - 06 I.T.A NO. 400 & 401 /RJT /20 13 A.Y. 2004 - 0 5 & 2005 - 06 PAGE NO M/S. KETAN CONSTRUCTION LTD. VS. DCIT 2 ITA NO. 400/RJT/20 13 ASSESSMENT YEAR 2004 - 05 (1) THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) .II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL AND UPHOLDING THE DECISION OF ASSESSING OFFICER IN DISALLOWING PRIOR PERIOD EXPENSES OF RS.1,09,447/ - IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. (2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) .II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL AND UPHOLDING THE DECISION OF ASSESSING OFFICER IN DISALLOWI NG RS.16,050/ - IN RESPECT OF RTO DIMENSION PENALTY IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. (3) THE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS).II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL AND UPHOLDING THE DECISION OF ASSESSING OFFICER IN MAKING ADDITION OF RS.21,420/ - ON ACCOUNT OF PENALTY DEBITED IN ROYALTY EXPENSES IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. (4) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) .II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL AND UPHOLDING THE DECISION OF ASSESSIN G OFFI CER IN DISALLOWING RS. 1,24,174/ - U/S. 40A(3) @ 20% OF RS. 6,20,873/ - U/S. 40A(2)(B) IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. (5) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS).II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL AND UPHOLDING THE DECI SION OF THE ASSESSING OFFI CER IN DISALLOWING RS.1,04,649/ - U/S. 36(1 )(VA) IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. (6) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS).II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL AND UPHOLDING THE DECISION OF THE ASSES SING O FFICER IN DISALLOWING RS.50,000/ - OUT OF MESS EXPENSES, GUEST HOUSE EXPENSES AND CONVEYANCE EXPENSES IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. 3. IN THIS CASE, RETURN OF INCOME WAS FILED ON 1 ST NOVEMBER, 2004 DECLARING INCOME OF RS. 1 , 66 , 8 1, 860/ - . ASSESSMENT WAS COM P LETED U/S. 143(3) AT TOTAL INCOME OF RS. 1,72,23,760/ - . FURTHER, FACTS OF THE CASE ARE DISCUSSE D ALONG WITH ADJUDICATION OF DIFFERENT GROUNDS OF APPEAL AS UNDER: CLAIM OF PRIOR PERIOD EXPENES OF RS. 1,09,447 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS DEBITED PRIOR PERIOD EXPENSES OF RS. 1,09,447/ - IN THE P & L A/C. BECAUSE OF PRIOR PERIOD NATURE OF EXPENSES T HE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF THE ASSESSE E. IN APPEAL BEFORE THE LD. CIT(A), LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE . WE HAVE HEAR D RIVAL CONTENTIONS. WE OBSERVED I.T.A NO. 400 & 401 /RJT /20 13 A.Y. 2004 - 0 5 & 2005 - 06 PAGE NO M/S. KETAN CONSTRUCTION LTD. VS. DCIT 3 THAT THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING THEREFORE THE ASSESSEE CAN CLAIM THE EXPENSES IN THE EARLIER YEA R WHEN THE EXPENSES WAS CARRIED OUT. THEREFORE, WE CONSIDERED THAT THE EXPENSES PERTAINING TO THE PRECEDING YEAR WAS NOT ALLOWABLE. T HE ASSESSEE FAILED TO EXPLAIN THE BASIS OF CLAIMING THE PRIOR PERIOD EXPENSES DURING THE YEAR UNDER CONSIDERATION . AFTER CONSIDERING ABOVE FACTS WE JUSTIFY THE DECISION OF T HE LD. CIT(A) IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THEREFORE, THE A PPEAL OF THE ASSESSEE ON THIS ISSUE IS DISMISSED. DISALLOWANCE OF RS. 16 , 050 / - IN RESPECT OF RTO DIMENSION AND RTO EXPENSES PENALTY OF RS. 21 , 420/ - 5 . DURING THE COURSE OF PENALTY PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS CLAIMED RT O D IMENSION PENALTY OF RS. 16 ,050/ - AND ANOTHER PENALTY OF RS . 21420/ - UNDER THE HEAD ROYALTY EXPENSES . T HE ASSESSING OFFICER HELD THAT THE SAME WERE NOT ALLOWABLE EXPENSES. TH E LD. CIT(A) HAS SUSTAINED BOTH THESE ADDITIONS . 6. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISSUE. WE OBSERVED THAT THE AFORESAID NATURE OF PENALTY WAS LEVIED ON VIOLATION OF SOME STATUTORY PROVISION. WE CONSIDERED THAT PENALTY FOR VIOLATION OF STATUTORY PROVISION IS NOT ALLOWABLE EXPENDITURE. THE ASSESSEE HAS NOT CONTRADICTED THE DECISION OF LOWER AUTHORITIES W I TH ANY SUPPORTING EVIDENCES THAT THE AFORESAID PENALTY WAS NOT PAID FOR VIOLATION OF ANY STATUTORY PROVISION . T HEREFORE , WE DO NOT FIND ANY REASON TO INTERFERE I.T.A NO. 400 & 401 /RJT /20 13 A.Y. 2004 - 0 5 & 2005 - 06 PAGE NO M/S. KETAN CONSTRUCTION LTD. VS. DCIT 4 IN T H E DECISION OF THE LD. CIT(A). ACCORDINGLY , THE APPEAL OF THE ASSESSEE ON THESE ISSUE S ARE ALSO DISMISSED. DISALL OWANCE OF RS. 1 , 24 , 174/ - U/S. 40A(2)(B) 7 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HE ASSESSING OFFICER HAS DISALLOWED RS. 1 , 24 , 174/ - BEING 20% OF RS. 6 , 20 , 873/ - U/S. 40A(3) BEING EXPENSES INCURRED IN CASH EXCEEDING RS. 20 , 00 0/ - BECAUSE THE ASSESSEE HAS NOT MADE THE PAYMENT BY CROSS PAYEE CHEQU E . THE ASS ESSEE HAS NOT SUBSTANTIATED ITS CLAIM THAT THE IMPUGNED PAYMENT WAS COVERED UNDER RULE 6DD OF THE IT R ULE. THE LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE . 8 . WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD . WE OBSERVED T HAT THE PLACE WHERE THE PAYMENT WAS MADE WAS FALLING UNDER THE URBAN AREA WHERE BANKING FACILITIES WAS AVAILABLE. WE FIND THAT ASSESSEE HAS NOT BROUGHT ON RECORD ANY EVIDENCES AND CIRCUMSTANCES TO DEMONSTRATE THAT THE PAYMENT IN CASH WAS MADE ACCORDING T O THE RULE 6DD OF THE IT RULES. THEREFORE, WE ARE INCLINE D WITH THE DECISION OF LD. CIT(A) . T HE APPEAL OF T HE ASSESSEE IS DISMISSED ON THIS ISSUE . DISALLOWANCE OF RS. 1,04,649 U/S. 36(I)(V A) 9 . THE ASSESSEE HAS NOT CREDITED EMPLOYEES CONTRIBUTION TO THE EMP LOYEES ACCOUNT AS PER THE DUE DATE PRESCRIBED IN THE RELEVANT ACT I.T.A NO. 400 & 401 /RJT /20 13 A.Y. 2004 - 0 5 & 2005 - 06 PAGE NO M/S. KETAN CONSTRUCTION LTD. VS. DCIT 5 THEREFORE,T HE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF CONTRIBUTION TOWARDS PF AMOUNTING TO RS. 1 , 04 , 649/ - . THE LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE ON THE GROUND THAT ASSESSEE HAS NOT DEPOSITED THE EMPLOYEE S CONTRIBUTION TO THE PROVIDENT FUND WITHIN THE PRESCRIBED TIME. 10 . WE HAVE HEARD RIVAL CONTENTIONS . W E CONSIDERED THAT IDENTICAL ISSUE HAS BEEN DECIDED BY THE JU RISDICTIONAL HON'BLE HIGH COURT OF GUJARAT IN THE CASE OF CI T VS. GUJARAT STATE ROAD TRANSPORT CORPORATION IN FAVOUR OF REVENUE , THEREFORE, THE APPEAL OF THE ASSESSEE IS DISMISSED ON THIS ISSUE. DISALLOWANCE OF MESS EXPENSES OF RS. 50,000/ - 11 . DURING T HE COURSE OF A SSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS DISALLOWED RS. 50,000/ - FROM VARIOU S HEADS OF EXPENSES LIKE MESS, GUEST HOUSE EXPENSES, CONVEYANCE EXPENSES OUT OF CUMULATIVE EXPENSES OF R S. 40 LACS. THE LD. CIT(A) SUSTAINED THE SAME BY CONSIDERING THAT DISALLOWANCES WAS ONLY BEING 1.25% OF THE TOTAL EXPENSES. 12 . WE HAVE HEARD THE RIVAL CONTENTIONS. WE FIND THAT ASSESSING OFFICER HAS NOT DETECTED ANY DISCREPANCY IN THE ACCOUNT OF ASSESSEE IN RESPECT OF CLAIM OF VARIOUS NATURE OF EXPENSES , THEREFORE , WE DO NOT JUSTIFY THE DECISION OF T HE LD.CIT(A) OF SUSTAINING THE ADDITION I.T.A NO. 400 & 401 /RJT /20 13 A.Y. 2004 - 0 5 & 2005 - 06 PAGE NO M/S. KETAN CONSTRUCTION LTD. VS. DCIT 6 WITHOUT SPECIFYING ANY REASON. THEREFORE, THE GROUND OF APPEAL OF ASSESSSE IS ALLOWED ON THIS ISSUE . ITA NO. 401 /RJT/2013 ASSESSMENT YEAR 2005 - 06 13 . THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - (1) THE L EARNED COMMISSIONER OF INCOME (APPEALS).II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL AND UPHOLDING THE DECISION OF THE ASSESSING OFFICER REGARDING RESTRICTING DEDUCTION U/S. 80IA TO RS.6,35,2 1,741/ - AS AGAINST CLAIMED AT RS.6,68,61,707/ - IS UNWARRANTED, U NJUSTIFIED AND BAD IN LAW. 2) THE LEARNED COMMISSIONER OF INCOME (APPEALS).II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL AND UPHOLDING THE DECISION OF THE ASSESSING OFFICER REGARDING DISALLOWI NG RS. 88,842/ - U/ S. 40A(3) @ 20% OF RS. 4,44,210/ - IS UNWARRANT ED, UNJUSTIFIED AND BAD IN LAW. 3) THE LEARNED COMMISSIONER OF INCOME (APPEALS).II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL AND UPHOLDING THE DECISION OF THE ASSESSING OFFICER REGARDING DISALLOWING RS.4,34,716/ - U/S. 36(1 )(VA) IS UNWARRANTED, UNJUSTIFIE D AND BAD IN LAW. (5) THE LEARNED COMMISSIONER OF INCOME (APPEALS).II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL AND UPHOLDING THE DECISION OF THE ASSESSING OFFICER REGARDING DISALLOWING RS.50,000/ - OUT OF MESS, STAFF WELFARE, CONVEYANCE &, GUEST HOUSE EXP ENSES IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. 14 . IN THIS CASE, RETURN OF INCOME DECLARING INCOME OF RS. 1 , 98 , 87 ,810 / - WAS FILED ON 31 ST OCT, 2005. RETURN OF INCOME ACCOMPANIED BY AN AUDIT REPORT AS PROVIDED SECTION 44AB OF THE A CT IN THE FORM NO. 3 CB AND 3CD AND ALSO U/S. U/S. 80IA OF THE ACT IN FORM NO. 10CCB. SUBSEQUENTLY, THE CASE WAS SELECTED UNDER U/S. 143(2) ON 26 TH JUNE, 2006. REST RICTING DEDUCTION U/S. 80IA TO RS. 6,35,21,741 A S AGAINST RS. 6 , 68 , 61 , 707/ - . 15 . ON VERIFICATION OF THE CLAIM OF DEDUCTION U/S. 80IA, T HE ASSESSING OFFICER OBSERVED THAT OTHER INCOME OF R S. 3 339966/ - IS NOT ELIGIBLE FOR DEDUCTION U/S. 80IA AND THIS INCOME COMPRISES INCOME I.T.A NO. 400 & 401 /RJT /20 13 A.Y. 2004 - 0 5 & 2005 - 06 PAGE NO M/S. KETAN CONSTRUCTION LTD. VS. DCIT 7 UNDER THE HEAD DIRECT SITE, E XCHANGE FLUCTUATION INCOME, ETC. WHICH IS STATED AS UNDER: - RS. DIRECT SITES HIRE CHARGES INCOME 375 INSURANCE CLAIM INCOME 1,128,000 OTHER INCOME 89,821 TOTAL 1,218,196 EXCHANGE RATE FLUCTUATION INCOME IN RESPECT OF VANTHALI SITE 599,074 IN RESPECT OF NARODA - SAMPA SITE 1,137,200 TOTAL 1,736,274 SUMMARY OTHER INCOME FROM DIRECT SITES 1,218,196 INCOME FROM BHUJ SUB - LET WORK 385,496 EXCHANGE RATE FLUCTUATION INCOME 1,736,274 TOTAL OTHER INCOME NOT ELIGIBLE FOR DEDUCTION U/S. 80IA 3,339,966 16 . AGGRIEVED AS SESSEE FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS JUSTIFIED THE DISALLOWANCE MADE BY T H E ASSESSING OFFICER ON THE GROUND THAT THESE INCOME WAS NOT ELIGIBLE FOR DEDUCTION U/S. 80IA IN VIEW OF THE DECISION OF THE H ON BLE SUPREME COURT IN TH E CASE OF LIBERTY INDIA (2009) 317 ITR 218. I.T.A NO. 400 & 401 /RJT /20 13 A.Y. 2004 - 0 5 & 2005 - 06 PAGE NO M/S. KETAN CONSTRUCTION LTD. VS. DCIT 8 17. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD CAREFULLY. WE HAVE NOTICED THAT THE A.O. HAS NOT INCLUDED INCOME ON ACCOUNT OF EXCHANGE RATE FLUCTUATION AND INSURANCE CLAIM INCOME AS PART OF THE INCOME ELIGIBLE FOR DEDUCTION U/S.80IA.. WE CONSIDERED THAT THE HON'BLE SUPREME COURT IN CASE OF LIBERTY INDIA (2009) 317 ITR 218. HELD THAT THE WORD 'DERIVED FROM' IS DIFFERENT FROM 'ATTRIBUTABLE TO'. IT WAS HELD IN THE AFORESAID DECISION THAT O NLY THOSE INCOMES WHICH HAVE A DIRECT NEXUS TO THE MAIN ACTIVITY ARE ELIGIBLE FOR DEDUCTION. THOSE INCOMES WHICH HAVE NO DIRECT NEXUS WITH THE MAIN ACTIVITY ARE NOT ELIGIBLE FOR DEDUCTION U/S.80IA. AFTER CONSIDERING THE FACTS AND THE LEGAL FINDINGS , WE JUSTIFY THE DECISION OF THE LD. CIT(A) IN SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THEREFORE, T HIS GROUND OF APPEAL OF THE ASSESSEE IS DISMISSED. 18. IN RESPECT OF REMAINING GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2005 - 06 , OUR FINDING S IN RESPECT ADJUDICATION OF IDENTICAL GROUNDS OF APPEAL FOR ASSESSMENT YEAR 2004 - 05 WILL BE APPLICABLE. 19. IN THE RESULT , BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PR ONOUNCED IN THE OPEN C OUR T ON 22 - 12 - 201 7 SD/ - SD/ - (RAJPAL YADAV ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 22 /12 /201 7 I.T.A NO. 400 & 401 /RJT /20 13 A.Y. 2004 - 0 5 & 2005 - 06 PAGE NO M/S. KETAN CONSTRUCTION LTD. VS. DCIT 9 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, RAJKOT