ADDL CIT 9(1), MUMBAI V. GLOBAL E-SERVICES P. LTD, MUMBAI

ITA 4576/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7284 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 05-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAJ KUMAR SINGH ITP
• Keywords: Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, G BENCH, MUMBAI. BEFORE S/SHRI S.V.MEHROTRA, AM & V.DURGA RAO,JM I.T.A. NO.4576/MUM/2009 ASSESSMENT YEAR: 2006-07 THE DCIT, RANGE 9(1), V. M/S. GLOBAL E-SERVICES P .LTD., AAYAKAR BHAVAN, M.K. ROAD, ASHOK HOUSE, ASHOK NA GAR, MUMBAI. ASHOK ROAD, KANDIVALI(E), MUMBAI. PA NO.AAACT 5168 P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI MOHD USMAN RESPONDENT BY : SHRI RAJ KUMAR SINGH (ITP) O R D E R PER S.V.MEHROTRA, AM THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER DATED 18.5.2009 OF LD CIT (A)-IX, MUMBAI DELETING THE ADDITION OF RS.4 ,17,45,125/- BEING INCREASE IN STOCK IN TRADE FOR THE ASSESSMENT YEAR 2006-07. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY, IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN THE BUSINESS OF INFORMATION TECHNOLOGY A ND REAL ESTATE. THE AO NOTICED THAT AS AGAINST THE TOTAL INVENTORY OF RS.37,74,25, 480/-, AS PER BALANCE SHEET FOR THE EARLIER YEAR, THE INVENTORY OF THE CURRENT YEAR WAS AS UNDE R:- I) PROPERTY UNDER DEVELOPMENT:- VALUE OF 22288.78 SQ. MTS FREEHOLD LAND CONVERTED INTO STOCK IN TRADE AS VALUED & CERTIFIED BY REGISTERED VALUER 26,28,86,514 PLUS DEVELOPMENT EXP. BMC PERMISSION FEES 4.22.150 VALUATION & OTHER CHARGES 1,27 ,837 ARCHITECTS FEES & OTHER EXP. 5,00,000 LESS: TRANSFERRED TO BUILDING 24,78,14,846 1,61,21,655 2 II) BUILDING CONVERTED INTO STOCK IN TRADE 7,63,6 3,350 TRANSFER FROM LAND 24,78,14,846 DEVELOPMENT EXPENSES 7,88,70,754 40,30,48,950 TOTAL: 41,91,70,605 III) TOTAL OF INVENTORY(STOCK IN TRADE) OF PRECEDING YEA R 37,74,25,480 FROM THE ABOVE, HE CONCLUDED THAT THERE WAS INCREAS E IN THE VALUATION OF INVENTORY (STOCK IN TRADE OF RS.4,17,45,125/-) WHICH HAD NOT BEEN CR EDITED TO PROFIT AND LOSS ACCOUNT. HE, THEREFORE, MADE AN ADDITION OF RS.4,17,45,125/-. 3. BEFORE LD CIT (A), THE ASSESSEE, INTER ALIA, SUBMITTED AS UNDER: IT IS SUBMITTED THAT THE LAND & NEW BUILDINGS CONST RUCTED SINCE 1998-99 HAVE BEEN HELD INTO STOCK IN TRADE, SUCH CAPITAL EX PENDITURE INCURRED ON CONSTRUCTION OF SAID BUILDINGS AS PER CONSISTENTLY FOLLOWED STANDARD ACCOUNTING PRACTICE BY THE ASSESSEE APPELLANT COMPA NY HAVE NEVER BEEN DEBITED INTO PROFIT AND LOSS ACCOUNT BECAUSE SAID N EW BUILDINGS HAVE BEEN CONSTRUCTED EITHER FOR OWN BUSINESS USE OR FOR COMM ERCIAL EXPLOITATION BY LETTING THEM OUT WITH COMPLETE INFRASTRUCTURE FOR L EASE RENT INCOMES, A FACT WHICH HAVE BEEN VERIFIED & ACCEPTED IN SCRUTINY ASS ESSMENT PROCEEDINGS OF ALL EARLIER ASSESSMENT YEARS. PLEASE REFER TO A SSESSMENT ORDERS OF A.Y. 2002-03 AND 2003-04 ENCLOSED IN PAPER BOOK AT PAGE NO.128 TO 134 & PAGE NO.88 TO PAGE 92 RESPECTIVELY CONTAINING THE S PECIFIC FINDINGS RECORDED IN THIS REGARD. IT IS STATED THAT IF THE SUCH BUILDING CONSTRUCTION EXPENDITURES INCLUDING LAND VALUE HAVE NOT BEEN DEB ITED INTO PROFIT AND LOSS ACCOUNT, QUESTION OF CREDITING THE SAME INTO P ROFIT & LOSS DOES NOT ARISE AT ALL AS HAS BEEN WRONGLY CONTENDED BY LD A. O. 4. LD CIT (A) ALLOWED THE ASSESSEES APPEAL FOLLOWI NG THE DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 VIDE APPEL LATE ORDER NO.CIT(A)/X/ACIT.9(1)/I.T.789/2006-07 DATED 4.2.200 8. 5. AT THE TIME OF HEARING, LD COUNSEL FOR THE ASSES SEE FILED BEFORE US A COPY OF ITAT ORDER DATED 22 ND DECEMBER, 2009 IN ITA NOS.5561,3182 & 5559/M/2008 FILED BY THE REVENUE FOR THE ASSESSMENT YEARS 2003-04, 2004-05 A ND 2005-06. IN ITA NO.3182/M/2008 FOR A.Y. 2004-05, GROUND NO.4 WAS A S UNDER:- ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, CIT (A) ERRED IN DELETING THE ADDITION OF RS.15,65,387/- BEING INCRE ASE IN STOCK AS CAPITAL EXPENDITURE. THE TRIBUNAL VIDE PARA 19 OF ITS ORDER HAVE CONCLUD ED AS UNDER: THE LAST GROUND IS ON THE DELETION OF AN ADDITION OF RS.15,65,387/- BEING INCREASE IN STOCK AS CAPITAL EXPENDITURE. AS ALREA DY STATED THE ASSESSEE 3 HAD CONVERTED ITS PROPERTY INTO STOCK IN TRADE AND IS DEVELOPING THE PROPERTY IN PIECEMEAL MANNER. IT CONSTRUCTED BUILD INGS BY WAY OF I.T.PARK AND CALL CENTRE AND THE EXPENDITURES INCURRED WERE NOT ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT BUT WERE DIRECTLY ADDED TO THE CLOSING STOCK OR INVENTORIES. IN SUCH CIRCUMSTANCES, WE ARE UNABLE TO UNDERSTAND HOW AN ADDITION COULD BE MADE BY THE AO ON ACCOUNT OF INCR EASED INVENTORY. IN CASE AO HAS TO TAKE INTO ACCOUNT THE INCREASED VALU E OF INVENTORY, THEN CORRESPONDINGLY, HE HAD TO DEBIT THAT AMOUNT TO THE PROFIT AND LOSS ACCOUNT AND CONSIDER THE SAME AS EXPENDITURE. EVEN OTHERWI SE, THE FIRST APPELLATE AUTHORITY AT PARAS 8.2 TO 8.4 HAS RIGHTLY OBSERVED THT THE ASSESSEE IS CONSISTENTLY FOLLOWING A PARTICULAR SYSTEM OF ACCOU NTING AND THERE IS NO LOGIC BEHIND THE AOS MAKING AN ADDITION ON ACCOUNT OF EXPENDITURE INCURRED ON BUILDINGS WHICH IS ADDED TO THE INVENTO RY DIRECTLY. THIS METHOD OF ACCOUNTING HAS BEEN EXAMINED BY THE AO IN EARLIER ASSESSMENT YEAR AND HAS NOT BEEN DISTURBED. ON THIS FACTUAL M ATRIX, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY ON THIS POIN T AND DISMISS THIS GROUND OF THE REVENUE. 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE ON THE IDENTICA L FACTS UPHELD THE ORDER OF LD CIT (A) FOR THE ASSESSMENT YEAR 2004-05 AND DISMISSED THE A PPEAL FILED BY THE REVENUE. CONSISTENT WITH THE DECISION OF THE TRIBUNAL, WE AL SO UPHOLD THE ORDER OF LD CIT (A) AND DISMISS THE GROUND TAKEN BY THE REVENUE. 7. IN THE RESULT, APPEAL FILED BY THE REVENUE STAND S DISMISSED. PRONOUNCED ON 29 TH MARCH, 2010 SD/- (V. DURGA RAO) (JUDICIAL MEMBER) SD/- (S.V. MEHROTRA) (ACCOUNTANTMEMBER) MUMBAI, DATED 29 TH MARCH , 2010 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-, MUMBAI 4. COMMISSIONER OF INCOME TAX, CITY-, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH G, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI 4 DATE INITIALS 1. DRAFT DICTATED ON 29.3.2010 PS 2. DRAFT PLACED BEFORE AUTHOR 29..3.2010 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER AM/JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/J M 5. APPROVED DRAFT COMES TO THE SR. PS PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER 5