ACIT, Nainital V. Kumaon Mandal Vikas Nigam Ltd., Nainital

ITA 4981/DEL/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3925 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 06-07-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER & SHRI K.N. CHARY, JUDICIAL MEMBER ITA NO.-4971/DEL/2011 ( ASSESSMENT YEAR: 2007-08) KUMAON MANDAL VIKAS NIGAM LTD. OAK PARK CAMPUS, MALLITAL, NAINITAL AABCK4290L VS DCIT NAINITAL & ITA NO.-4981/DEL/2011 ( ASSESSMENT YEAR: 2007-08) ACIT GOLGHAR, BARA BAZAR, NAINITAL VS KUMAON MANDAL VIKAS NIGAM LTD. OAK PARK CAMPUS, MALLITAL, NAINITAL AABCK4290L ASSESSEE BY NONE REVENUE BY SH. AMIT JAIN, SR. DR ORDER PER BENCH THESE TWO APPEALS ARE PREFERRED BY THE ASSESSEE AND REVENUE CHALLENGING THE ORDER DATED 17.08.2011 IN APPEAL NO . 45/CIT (A)-II/2010- DATE OF HEARING 17.10.2017 DATE OF PRONOUNCEMENT 24.10.2017 2 ITA NOS. 4971 & 4981/DEL/2011 11 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (AP PEALS)-II, DEHRADUN (HEREINAFTER FOR SHORT CALLED AS THE LD. CIT (A)). 2. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSES SEE IS A GOVERNMENT COMPANY ENGAGED IN VARIOUS COMMERCIAL ACTIVITIES WH ICH CAN BE CATEGORIZED INTO FIVE MAJOR GROUPS: TOURISM, CONSTR UCTION, MARKETING (TRADING & DISTRIBUTION), INDUSTRY AND FINANCIAL AS SISTANCE. THERE ARE 119 UNITS OPERATING IN DIFFERENT PARTS OF THE STATE UTT ARAKHAND AND OUTSIDE. FOR THE AY 2007-08 THEY HAVE FILED THE RETURN OF INCOME ON 31.10.2007 DECLARING A TOTAL INCOME OF RS. 1,17,87,340/- AND D URING THE SCRUTINY AO FOUND THAT THE ASSESSEE FURNISHED THE RETURN ONLY O N THE BASIS OF TENTATIVE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS BEEN FIL ED THE RETURN OF INCOME FOR EVERY ASSESSMENT YEAR WITHOUT COMPLYING WITH TH E TAX AUDIT PROVISIONS AS ENUMERATED U/S 44AB OF THE INCOME TAX ACT, 1961 (FOR SHORT CALLED AS THE ACT) AND THE PLEA TAKEN BY THE ASSESSEE FOR T HE SAME IS THAT IT WAS DUE TO NON COMPLETION OF STATUTORY AUDIT BY C&AG. AFTER CONSIDERING THE FACT THAT THE ACCOUNTS OF THE ASSESSEE ARE VOLUMINO US BY VIRTUE OF ITS BEING ENGAGED IN VARIOUS BUSINESS ACTIVITIES, THE B OOKS OF ACCOUNTS ARE BEING MAINTAINED AT THE UNIT LEVEL AND THEN COMPILE D AND FINALIZED AT THE CORPORATION LEVEL COUPLED WITH THE FACT THAT ACCOUN TS OF THE CORPORATION WERE NOT AUDITED AND FOLLOWING THE COMPLEXITIES THA T WERE INVOLVED LIKE: 3 ITA NOS. 4971 & 4981/DEL/2011 1. THE ACCOUNTS FOR THE AY 2007-08 HAVE NOT BEEN AU DITED. IN THE ABSENCE OF AUDITED ACCOUNTS, IT IS NOT POSSIBLE TO ARRIVE AT THE CORRECT FIGURE OF NET PROFIT. 2. THE PROFIT AS SHOWN IN THE RETURN OF INCOME IS T ENTATIVE PROFIT. NO BALANCE SHEET HAS BEEN PREPARED FOR THE RELEVANT PR EVIOUS YEAR. IN THE ABSENCE OF BALANCE SHEET IT IS DIFFICULT TO ASC ERTAIN THE ASSETS AND LIABILITIES OF THE CORPORATION. 3. THE OPENING BALANCES, THE DETAILS OF ADDITIONS T O FIXED ASSETS AND THE CLOSING WDV IS NOT KNOWN. IT IS DIFFICULT TO A RRIVE AT THE FIGURE OF ALLOWABLE DEPRECIATION FOR THE INSTANT A.Y. 4. THE FIGURES OF OPENING STOCK ARE NOT ACCEPTABLE AS THE ACCOUNTS FOR THE FY 2006-07 HAVE NOT BEEN AUDITED. 5. THE INFORMATION ON LOANS TAKEN IS NOT AVAILABLE DUE TO NON FILING OF BALANCE SHEET, MAKING IT IMPOSSIBLE TO VERIFY THE C LAIM OF EXPENDITURE ON ACCOUNT OF INTEREST. 6. THE STATUTORY AUDIT OF THE ACCOUNTS HAS NOT BEEN COMPLETED AS PER THE PROVISIONS OF SECTION 44AB OF THE INCOME TAX AC T, 1961. IT IS NOT POSSIBLE TO RELY ON THESE FIGURES FOR THE CORRE CT FIGURE OF NET PROFIT FOR THE CORPORATION AS A WHOLE. THE ACCOUNTS WERE GOT AUDITED BY A SPECIAL AUDITOR U/S 142(2A) OF THE ACT. IN THE LIGHT OF THE SPECIAL AUDITOR REPORT IT WAS F OUND THAT BY REPORT DATED 29.05.2010 THE AUDITORS OPINED THAT THEY ARE UNABLE TO EXPRESS THEIR OPINION ABOUT THE TRUE AND FAIRNESS OF THE PROFIT A RRIVED IT BY THE PROVISIONAL PROFIT AND LOSS ACCOUNT, BUT AS PER TENTATIVE RECEI PTS AND PAYMENT ACCOUNTS PROVIDED TO THEM THE PROFIT AS DEPICTED IN PROFIT AND LOSS ACCOUNT 4 ITA NOS. 4971 & 4981/DEL/2011 HAS BEEN CALCULATED CAREFULLY. OUT OF 11 DIVISIONS OR ACTIVITIES OF THE ASSESSEE THE AO ON COMPARISON WITH THE FIGURES RELA TING TO THE IMMEDIATELY PRECEDING YEAR NOTICED THAT THERE WAS A N INCREASE IN GP IN RESPECT OF 4 DIVISIONS/ACTIVITIES, WHEREAS THERE IS REDUCTION OF THE SAME IN RESPECT OF THE REMAINING 7. ON THIS THE AO PROCEED ED TO ENHANCE THE GP RATES IN THE ACCOUNTS OF THE DIVISIONS/ACTIVITIES W HERE THERE IS A DECLINE IN GP IN RELATION TO THE IMMEDIATELY PRECEDING YEAR BU T WITHOUT TOUCHING THE ACCOUNTS RELATING TO THE DIVISIONS/ACTIVITIES, WHER E THERE IS INCREASE IN GP IN RELATION TO THE IMMEDIATELY PRECEDING YEAR. FUR THER, AO TREATED THE ENTIRE ONE TIME REFUNDABLE SECURITY DEPOSIT RECEIVE D FROM THE TENANTS OF THE SHOPPING COMPLEX AS INCOME, BESIDES TREATING TH E ENTIRE INTEREST EARNED ON YEAR MARKED FUNDS AS INCOME OF THE CORPOR ATION. BASING ON THE ABOVE STATED OPINION OF THE AUDITORS VIZ-A-VIZ THE DECLINE OF THE GP RATE IN RESPECT OF THE SOME DIVISIONS/ACTIVITIES AO REJECTE D THE BOOKS OF ACCOUNT. IN THE APPEAL PREFERRED BY THE ASSESSEE LD. CIT (A) DELETED THE ADDITIONS MADE BASING ON THE DECLINE IN GP RATE RELATING TO F L2 UNIT, TOUR DIVISION, GAS DIVISION, PARVAT FABRICATION AND PARVAT WIRES B ESIDES THE ADDITIONS MADE ON ACCOUNT OF INTEREST EARNED ON YEAR MARKED F UNDS, WHILE CONFIRMING THE PART OF ADDITIONS IN RESPECT OF PARV AT FABRICATION AND PARVAT WIRES AND ALSO THE DISALLOWANCE U/S 40A(3), IN RESP ECT OF PAYMENT OF 5 ITA NOS. 4971 & 4981/DEL/2011 STATUTORY LIABILITY OF GROUP GRATUITY TO LIC, DISAL LOWING THE INTEREST PAID TO THE GOVERNMENT, IN RESPECT OF THE SECURITY DEPOSITS , INTEREST AND DEPRECIATION ON NOIDA LAND AND THE ADDITION MADE ON THE PRESUMPTIVE VALUE OF EQUIPMENTS DETAINED BY THE CORPORATION FRO M ERSTWHILE CONTRACTOR AND LEASE RENT. 3. CHALLENGING THE CONFIRMATION OF THE ADDITIONS AS SESSEE IS IN APPEAL IN ITA NO. 4971/2011, WHEREAS CHALLENGING THE DELET IONS AS STATED ABOVE THE REVENUE IS IN APPEAL BEFORE US IN ITA NO. 4981/ DEL/2011. 4. AT THE OUTSET, IT COULD BE SEEN FROM THE RECORD THAT ON SOME OCCASIONS LIKE 10.10.2012, 16.05.2016, 01.09.2016 E TC. THE ADJOURNMENTS WERE SOUGHT ON BEHALF OF THE ASSESSEE BUT BY AND LA RGE THE ASSESSEE DOES NOT SHOW ANY INTEREST IN PROSECUTING THE MATTE R AND HAS BEEN CONTINUOUSLY ABSENT IN SPITE OF SEVERAL NOTICES BEI NG ISSUED. SINCE IT IS A MATTER OF 2011, WE DO NOT FIND IT JUST AND PROPER T O ADJOURN IT FROM DATE TO DAY INDEFINITELY. WE HOLD THAT THE CONDUCT OF THE ASSESSEE DOES NOT INSPIRE ANY CONFIDENCE THAT ANY POINT OF TIME THE A SSESSEE WOULD COOPERATE WITH THE DISPOSAL OF THE MATTER ON MERITS . WE, THEREFORE, FOLLOWING THE DECISION IN COMMISSIONER OF INCOME-TA X VS MULTIPLAN INDIA 6 ITA NOS. 4971 & 4981/DEL/2011 (P) LTD.: 38 ITD 320(DEL), DISMISS THE ASSESSEES A PPEAL AND PROCEED TO DISPOSE OF THE REVENUES APPEAL. 5. AS COULD BE SEEN FROM THE RECORD THE REVENUE IS CHALLENGING THE DELETION OF THE ADDITIONS MADE ON THE BASIS OF THE FALL OF GP RATE IN RESPECT OF FL 2 UNIT, TOURISM DIVISION, GAS DIVISION, PARVA T FABRICATION AND PARVAT WIRES BESIDES THE ADDING OF INTEREST EARNED ON YEAR MARKED FUNDS. LD. CIT (A) OBSERVED THAT THE ACTION OF THE AO IN PENAL IZING THE ASSESSEE IN RESPECT OF THE UNITS WHERE THE GP RATE IS DECLINED WITHOUT SHOWING ANY CONCERN TO COMPENSATE THEM IN RESPECT OF THE UNITS, WHERE THE GP RATE WAS ON INCREASE. THE VARIANCE IN GP RATE, ACCORDIN G TO THE LD. CIT (A) HAD TO BE CONSIDERED IN HOLISTIC VIEW, BUT PICKING UP SOME UNITS FOR PENALIZATION WITHOUT REWARD TO THE UNITS WHERE THE GP RATE WAS INCREASED IS BAD. IN RESPECT OF FL 2 UNIT, GAS DIVISION, PAR VAT FABRICATION AND PARVAT WIRES THE DECLINATION WAS IN SIGNIFICANT LD. CIT (A ) OBSERVED THAT THERE IS MARGINAL DECLINATION. IN RESPECT OF ALL THESE UNIT S LD. CIT (A) OBSERVED THAT NO SPECIFIC CASE OF INFLATION OF DIRECT EXPENS ES OR SUPPRESSION OF RECEIPTS WAS FOUND BY THE AO. MERELY BECAUSE THERE IS DECREASE IN THE GP RATE ADDITION COULD BE MADE IN THE ABSENCE OF AN Y SPECIFIC FINDING AS TO THE INCORRECTNESS OF THE ACCOUNTS. ON THIS ASPE CT, WE ARE IN AGREEMENT WITH THE LD. CIT (A) BECAUSE THE AO HAD TO TAKE BOT H THE INCREASED AND 7 ITA NOS. 4971 & 4981/DEL/2011 DECREASED IN GP RATE IN RESPECT OF ALL THE UNITS AS A WHOLE BUT LEAVING THE PROFIT MAKING UNITS UNREWARDED IT IS NOT FAIR TO PI CK UP ONLY SUCH UNITS WHERE THE GP RATE IS ON A FALL. NO DOUBT, ADDITION COULD BE MADE IN RESPECT OF SUCH UNITS, IF THE AO FINDS ANY SPECIFIC DEFECT INDICATING INFLATION OF DIRECT EXPENSES OR SUPPRESSION OF RECEIPTS. THE SAME METHOD OF ACCOUNTANCY HAD GIVEN RISE TO BOTH RISE AND FALL IN THE GP RATE AMONGST THE DIVISIONS OF THE ASSESSEE. IN THE CIRCUMSTANCE S, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A) ON THIS ASPECT, AS SUCH, WE FIND THAT GROUNDS NO. 1 TO 4 ARE LIABLE TO BE DISMISSED. 5. NOW COMING TO GROUND NO. 5 IT RELATES TO THE DEL ETION OF THE ADDITION MADE ON ACCOUNT OF INTEREST EARNED ON YEAR MARKED F UNDS. ON THIS ASPECT THE FACTS ARE THAT THE ASSESSEE WHILE ACTING AS A G OVERNMENT CONSTRUCTION AGENCY HAS BEEN ALLOTTED WITH THE CONSTRUCTION WORK AND IN THAT RESPECT CERTAIN ADVANCES WERE GIVEN TO PERFORM THESE CONTRA CTS. UNUTILIZED AMOUNTS OF THESE ADVANCES, CALLED AS EARMARKED FUN D ARE KEPT IN FIXED DEPOSITS IN BANK EARNING INTEREST. AS PER THE COMM ENTS OF C&AG THE INTEREST EARNED ON THESE EARMARKED FUND SHALL BE TRANSFERRED AND CREDITED TO THE EARMARKED FUND AND THE CORPORATIO N HAS NO AUTHORITY TO USE OR EXPAND OR UTILIZED THE INTEREST EARNED FOR I TS OWN PURPOSES, AND ANY CREDIT OF THIS EARMARKED FUND TO THE ACCOUNTS OF THE ASSESSEE RESULTS IN 8 ITA NOS. 4971 & 4981/DEL/2011 UNDERSTATEMENT OF LOSS AND CURRENT LIABILITIES. HO WEVER, AO FELT THAT THE INTEREST EARNED ON THE EARMARKED FUND WOULD ALSO GO TO THE SAME KITTY OF FUNDS OF THE COMPANY, AS SUCH, THE INTEREST AMOUNT OF RS. 12,32,322/- HAS TO BE TREATED AS INCOME. LD. CIT (A) ON THIS ASPEC T FOUND THAT IN RESPECT OF ALL THE ASSESSMENT YEARS 2005-06 AND 2006-07 ALS O IN APPEAL LD. CIT (A) ACCEPTED THE CONTENTION OF THE CORPORATION AND HELD THAT THE INTEREST EARNED ON EARMARKED FUND FDR CANNOT BE TREATED AS INCOME OF THE CORPORATION. FOLLOWING THE SAME IN RESPECT OF THE AY 2007-08 ALSO LD. CIT (A) GRANTED RELIEF TO THE ASSESSEE. NO CHANGE OF FACTS FROM THOSE OF THE ASSESSMENT YEARS 2005-06 AND 2006-07 IS BROUGHT TO OUR NOTICE. WE DO NOT FIND ANY ILLEGALITY OR IRREGULARITY IN THE L D. CIT (A) IN TAKING THE SAME VIEW ON IDENTICAL FACTS. WE, THEREFORE, UPHOLD THE FINDING OF THE LD. CIT (A) AND DISMISS THE GROUND NO. 5 ALSO. 6. IN THE RESULT, BOTH THE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.10.2017 SD/- SD/- (R.K. PANDA) (K.N. CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24.10.2017 *KAVITA ARORA 9 ITA NOS. 4971 & 4981/DEL/2011 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI