Bla JV, Kolkata V. DCIT, CIR-31, KOLKATA, Kolkata

ITA 532/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0696 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 07-05-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DAVID Z CHOWNGTHU ADD L CIT LD
• Assessee Lawyers: A K TIBREWAL FCA LD
• Keywords: Business expenditure; Rule of consistency
• Section: 37

Judgement Text

ITA NO. 532/KOL/2015 PAGE | 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIA L MEMBER I.T.A NO. 532/KOL/2015 A.Y : 2011-12 BLA JV APPELLANT PAN: AAAAB6411F VS D.C.I.T, CIR-31, KOLKATA RESPONDENT FOR THE APPELLANT : SHRI A.K. TIBREWAL, FCA, LD.A R FOR THE RESPONDENT : SHRI DAVID Z. CHOWNGTHU, ADD L. CIT, LD.DR DATE OF HEARING : 20-09-2017 DATE OF PRONOUNCEMENT : 13-12-2017 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER DAT ED 29-01- 2015 OF COMMISSIONER OF INCOME TAX (APPEALS), FOR SHORT CIT(A) HEREIN, 9, KOLKATA FOR THE ASSESSMENT YEAR 2010-11. 2. THE ONLY QUESTION IS TO BE DECIDED AS TO WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING THE ADDITION MADE ON ACCOUN T OF EXPENDITURE INCURRED ON MATERIAL & OPERATING COST & EMPLOYEE C OST IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. BRIEF FACTS OF THE CASE RELATING TO THE ISSUE AR E THAT THE ASSESSEE IS A JOINT VENTURE (JV) BETWEEN M/S. BLA PVT. LTD OF KOLKATA AND M/S. DINESH CHANDRA AGARWAL INFRACON PVT. LTD O F GUJARAT HAVING PROPORTIONATE SHARE OF PROFIT OF 95% AND 5% RESPECT IVELY. THE ASSESSEE JV SUCCEEDED IN BIDDING IN RESPECT OF HIGH WAY ROAD CONSTRUCTION FOR DEVELOPMENT OF 95 KMS IN THE STATE OF BIHAR UNDER THE SCHEME RASHTRIYA SAM VIKAS YOJANA. ITA NO. 532/KOL/2015 PAGE | 2 4. IN THE COURSE OF EXECUTING SAID CONTRACT THE ASS ESSEE ENTRUSTED SUB-CONTRACTS TO M/S. BLA PVT. LTD & M/S. BLA INFRA STRUCTURE PVT. LTD. ACCORDING TO AO, THE ASSESSEE JV RECEIVED A RECEIP T OF RS.33,12,91,735/- AND MADE PAYMENTS TO SEVEN PART IES, MAJOR OF WHICH M/S. BLA PVT. LTD AND M/S. BLA INFRASTRUCTURE PVT. LTD TOTALING TO RS.30,69,38,537/-. THE ASSESSEE ALSO CLAIMED BU SINESS EXPENSES OF RS.2,05,42,294/- AND SHOWN NET PROFIT AT RS.38,1 0,903/-, WHICH IS 1.2% OF THE TURNOVER, THE AO FOUND THE SAME NOT ACC EPTABLE AND ACCORDINGLY, DIRECTED THE ASSESSEE TO PROVIDE COST OF WORK ATTRIBUTABLE TO SUB CONTRACTORS AND THE COST OF THE RESIDUAL WOR K EXECUTED BY THE ASSESSEE. BEFORE THE AO, THE ASSESSEE FILED COMPARA TIVE STATEMENT. THE AO WAS NOT SATISFIED WITH THE COMPARATIVE STATE MENT SHOWING CONTRACT PAYMENT MADE BY THE ASSESSEE FOR EACH SUCH QUANTITY OF WORK WITH REFERENCE TO R.A BILLS AND OBSERVED THAT THE ASSESSEE ACTUALLY HAS NOT DONE ANY WORK. HE HELD THAT THE AS SESSEE PRODUCED BILLS AND VOUCHERS FOR EXPENSES AND WITHOUT EXECUTI NG ANY WORK AND SUBSTANTIATING THE NATURE OF WORK. THE AO DISALLOWE D A SUM OF RS.54,38,704/- BEING THE EXPENSES CLAIMED AS SPENT IN CASH, ON MATERIALS & OPERATING COST AND EMPLOYEE COST AND A DDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. RELEVANT PORTI ON OF AOS ORDER IN THIS REGARD IS REPRODUCED HEREIN BELOW :- 4. THE ASSESSEE CLAIMED THAT A SMALL PART OF WOR K (AFTER SUBCONTRACTING THE WORK FOR WHICH 90% OF THE REVENUE RECEIPT WAS PAID OFF AS SU B-CONTRACT EXPENSE), WAS KEPT ASIDE FOR EXECUTION BY THE JV, FOR WHICH THERE WAS FURTHE R EXPENSE OF RS.2,05,42,294.76 DEBITED IN THE PROFIT & LOSS ACCOUNT OF ASSESSEE BL A JV. EFFECTIVELY AFTER PAYING OUT SUB- CONTRACT PAYMENT OF RS.30,69, 38,537 FROM CONTRACT RECEIPT OF RS.33,12,91,735 RECEIVED FROM CPWD, A FURTHER SUM OF RS.2,05,42,294 IS REDUC ED FROM THE PROFIT AS BUSINESS EXPENSES TO ARRIVE AT THE YEAR'S BUSINESS / PROFIT OF RS.38,10,903. THE NET PROFIT OF THE YEAR WAS THUS MERELY 1.2% OF THE TURNOVER. 5. TO FIND OUT WHAT SORT OF RESIDUAL WORK WAS EXEC UTED BY THE JV WHICH WAS NOT GIVEN ON SUB-CONTRACT, AND TO MAKE A COST ANALYSIS OF THE TOTAL EXECUTED WORK AS CLAIMED IN THE ACCOUNTS OF THE ASSESSEE, THE ASSESSEE WAS ASKE D TO PROVIDE THE COST OF WORK ATTRIBUTABLE TO THE SUB-CONTRACTORS AND TO 'ITSELF, IN A SPECIFIED TABULAR FORMAT. A 'COMPARISON STATEMENT' WAS FURNISHED ON 25/3/2013 I N THE SPECIFIED FORMAT BUT WITHOUT ALL THE SPECIFIED DETAILS. BREAK UP OF QUANTITY OF WORK OF THE TWO MAJOR SUB CONTRACTORS WAS GIVEN IN THE 'COMPARISON STATEMENT', SHOWING CO NTRACT PAYMENT MADE BY ASSESSEE FOR EACH SUCH QUANTITY OF WORK WITH REFERENCE TO R. A. BILLS. QUANTITY OF RESIDUAL WORK CLAIMED TO HAVE BEEN EXECUTED BY THE ASSESSEE-JV ON ITS -OWN, WAS ALSO GIVEN ALONGSIDE, BUT THE CORRESPONDING .COST OF EXECUTION OF THE WOR K WAS NOT GIVEN - INSTEAD, AN AMOUNT BASED ON THE CPWD CONTRACT RATE (SALES FIGURE ATTRI BUTABLE TO SUCH WORK) WAS GIVEN AGAINST SUCH RESIDUAL WORK. IT WAS THUS NOT POSSIBL E TO CARRY OUT THE INTENDED COST ANALYSIS OF THE TOTAL EXECUTED WORK. THE AUTHORIZED REPRESENTATIVE ADMITTED (AS RECORDED IN NOTE SHEET) THAT THERE IS NO WAY TO 'EVIDENCE' T HAT THE ASSESSEE-JV 'HAD ACTUALLY DONE ANY WORK' EXCEPT BY PRODUCTION OF BILLS AND VOUCHER S OF EXPENSES, AND 'THE EXPENSE CANNOT BE QUANTIFIED' CATEGORY WISE BY ITEM NUMBER OF R.A.BILL AS WAS DONE IN THE CASES OF SUB-CONTRACTORS' WORK. BILL AND VOUCHERS WERE RA ISED IN THOUSANDS AND CANNOT BE ITA NO. 532/KOL/2015 PAGE | 3 ATTRIBUTED TO ANY WORK PERFORMANCE OF BLA PVT LTD I N THE STATUS OF A JV, AND THUS, COULD NOT BE ESTABLISHED AS A PROOF OF WORK DONE BY THE A SSESSEE-JV. 6. DURING THE ENTIRE PROCEEDINGS NO EVIDENCE COUL D BE PRODUCED TO SUBSTANTIATE THAT THERE WAS WORK WHICH WAS NOT EXECUTED BY THE SUB-CO NTRACTOR BLA PVT LTD AND WHICH HAD TO BE EXECUTED BY BLA PVT LTD IN THE STATUS OF A JV, GIVEN THE FACT THAT THE JV HAD NO TOOLS OR MACHINERIES TO EXECUTE ANY OF THE DESIGNAT ED WORK. IT APPEARS THAT THE JV HAS DEVISED AN ARRANGEMENT WITH ITS OWN MEMBER AND ALLI ED COMPANIES/FIRMS TO REDUCE THE NORMAL PROFIT OF A CONTRACTOR'S BUSINESS THROUGH MU LTILAYERED EXPENDITURES. MOST EXPENSES RELATABLE TO THE ALLEGED RESIDUAL WORK WER E MADE IN CASH AND THUS COULD NOT BE RELATED TO STATED RECIPIENTS. IN THIS ASSESSMENT I AM LIFTING THE VEIL OF IMPROPRIETY OF TAX PLANNING RESORTED TO BY THE ASSESSEE BY DISALLOWING THE EXPENSES RELATED TO UNIDENTIFIABLE RESIDUAL WORK ALLEGEDLY CARRIED ON B Y BLA PVT LTD IN THE STATUS OF A JV. ADMINISTRATIVE & OTHER EXPENSES LISTED IN SCHEDULE 12 OF THE P&L ACCOUNT AMOUNTING TO RS.1,51,03,590 IS ALLOWED-LIBERALLY FOR DEDUCTION U /S 36 AND 37 FOR RUNNING OF THE ADMINISTRATION OF THE JV. THE SUM OF RS.54,38.704 B EING THE SUM OF EXPENSES SPENT IN CASH, ON 'MATERIAL & OPERATING COST' AND 'EMPLOYEE COST' IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE IN THIS ASSESSMENT, AS INAPP ROPRIATE EXPENDITURE WHICH DO NOT QUALIFY FOR DEDUCTION U/S 36 OR 37. I HAVE COMPARED NET PROFITS OF OTHER JOINT VENTURE ASSESSEES IN CONSTRUCTION BUSINESSES AND PARTICULAR LY OF 'M/S. ABHYUDAYA ROUSING & CONSTRUCTION PVT LTD & SAKET NIRMAN (JV), HAVING PA N: AAAAA9954G, ASSESSED WITH ACIT CIRCLE - 33, KOLKATA. 'M/S. ABHYUDAYA HOUSING & CONSTRUCTION PVT LTD & SAKET NIRMAN (JV) WAS ALSO ENGAGED IN ROAD CONSTRUCTION P ROJECT OF CPWD, IN KATHIAR AND PURNIA DISTRICT OF BIHAR UNDER RSVY, AND HAD SHOWN A NET PROFIT OF 4% IN AY 2010-11. THE NET PROFIT OF THE ASSESSEE IS THUS EFFECTIVELY INCREASED TO 2.79%. 5. AGGRIEVED THE ASSESSEE CHALLENGED THE SAME BEFOR E THE CIT-A. THE CIT-A TAKING INTO CONSIDERATION THE DECISIONS O F HONBLE COURTS ALONG WITH ASSESSMENT ORDER AND THE SUBMISSION OF A SSESSEE WAS OF THE VIEW THAT THE ASSESSEE FAILED TO GIVE THE DETAI LS OF WORK EXECUTED BY THE JV WITH SUPPORTING DOCUMENTS AND DETAILS EIT HER BEFORE AO OR BEFORE HIM. THE CIT-A FOUND THAT THERE WAS NO WORK EXECUTED BY THE ASSESSEE JV AND THAT THE ASSESSEE COULD NOT PROVE T HAT THE ASSESSEE HAD ANY MACHINERY AND TOOLS TO EXECUTE ANY WORK. IN ABSENCE OF SUPPORTING DOCUMENTS AND DETAILS TO SUBSTANTIATE TH E CLAIM, THE CIT- A HELD THE AO WAS JUSTIFIED IN DISALLOWING THE IMPU GNED AMOUNT. RELEVANT PORTION OF CIT-A ORDER IS REPRODUCED HEREI N BELOW:- AFTER GOING THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE, I FIND THAT THE APPELLANT FAILED TO GIVE THE DETAILS OF WORK EXECU TED BY THE JV WITH SUPPORTING DOCUMENTS/DETAILS EITHER BEFORE THE AO OR BEFORE ME . I DO NOT FIND ANY INFIRMITY IN THE AOS ORDER AS THE APPELLANT FAILED TO PRODUCE ANY E VIDENCE OR THE DOCUMENTS TO SUBSTANTIATE THEIR CLAIM THAT THERE WAS ANY WORK W HICH WAS NOT TO BE EXECUTED BY THE SUB-CONTRACTORS AND WHICH WAS EXECUTED BY THE APPEL LANT JV. IT ALSO COULD NOT BE PROVED THAT THE APPELLANT HAD ANY MACHINERY/TOOLS TO EXECU TE ANY DESIGNATED WORK. IN ABSENCE OF SUPPORTING DOCUMENTS/DETAILS TO SUBSTANTIATE THE IR CLAIM IN THIS REGARD, THE STAND TAKEN BY THE AO WAS JUSTIFIED. FURTHER, THE SUBMISSION OF THE APPELLANT THAT SAME TYPE OF EXPENSES WERE CLAIMED AND ALLOWED IN THE IMMEDIATE TWO PRECEDING YEARS. H ERE IT IS MENTIONED THAT THE GENERAL PRINCIPLE IS THAT IF FINDING OR OPINION RECORDED BY THE AUTHORITY OR EVEN BY A COURT OF LAW FOR ONE ASSESSMENT YEAR HAS NO BINDING EFFECT ON TH E ISSUES IN THE SUBSEQUENT ASSESSMENT YEARS. THERE ARE VARIOUS DECISIONS OF TH E HONBLE COURTS IN THIS REGARD IN WHICH IT HAS BEEN HELD THAT THE PRINCIPAL OF REST-J UDICATA IS NOT APPLICABLE IN TAX MATTERS. FURTHER, THE CONTENTION OF THE APPELLANT THAT THE B OOKS OF ACCOUNTS WERE NOT REJECTED BY THE AO. U/S. 145(3) OF THE I.T ACT AND THEREFORE, H E WAS NOT JUSTIFIED TO ESTIMATE HIGHER PROFIT. HOWEVER, I FIND FROM THE FACTS AND CIRCUMST ANCES OF THE CASE THAT THE AO HAD NOT ESTIMATED THE PROFIT BUT DISALLOWED THE CLAIM OF EX PENDITURE OF RS.54,38,704/- WHICH WAS NOT SUBSTANTIATED WITH THE SUPPORTING DOCUMENTS. IN VIEW OF THE FACTS AND CIRCUMSTANCES ITA NO. 532/KOL/2015 PAGE | 4 OF THE CASE AS DISCUSSED ABOVE, I FIND THAT THE AO WAS JUSTIFIED TO MAKE DISALLOWANCE OF RS.54,38,704/-. 6. BEFORE US THE LD.AR SUBMITS THAT THE CIT-A HAS E RRED IN CONFIRMING THE IMPUGNED DISALLOWANCE MADE BY THE AO AND THAT HE DISREGARDED THE PRINCIPLE OF CONSISTENCY, AS NO SU CH DISALLOWANCE WAS MADE IN EARLIER ASSESSMENTS, INVOLVING IDENTICAL FA CTS ON A SIMILAR ISSUE. HE FURTHER SUBMITS THAT THE AO MADE DISALLOW ANCE ONLY BY INCREASING NET PROFIT RATIO FROM 1.15% TO 2.79% WIT HOUT REJECTING THE BOOKS OF ACCOUNT. THE LD.AR OF THE ASSESSEE BEFORE US SUBMITTED A DETAILED PAPER BOOK (2 SETS) NO. 1- CONTAINING PAGE S 1 TO 169 AND NO.2 PAGES 1 TO 36 IN SUPPORT OF THE CONTENTION REG ARDING VARIOUS EXPENDITURE INCURRED BY THE ASSESSEE UNDER VARIOUS HEADS. THE LD.AR ALSO FILED PAPER BOOK CONTAINING FOUR ITEMS I.E JOI NT VENTURE AGREEMENT, COMPARATIVE CHART, AUDITED ACCOUNTS & AS SESSMENT ORDER FOR A.Y 2009-10 DT. 27-12-2011. HE ALSO REFERRED TO PAGE-1 OF THE 2 ND PAPER BOOK AND THE LD.AR ALSO DREW OUR ATTENTION TO THE PAGE 10 OF PAPER BOOK AND ARGUED THAT THE ASSESSEE BEING JV IN CURRED EXPENDITURE UNDER THE MAIN HEAD AT SL.NO.3 AND SUBM ITTED THAT THE EXPENDITURE INCURRED UNDER THE SUB-HEADS (B) TO ( I) WAS INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSE. THE LD .AR POINTED OUT SL. NO. 4 AND SUBMITS THAT THE COSTS WERE INCURRED TOWA RDS EMPLOYEE COST AND THAT THE SAID EXPENDITURE REQUIRED TO BE A LLOWED AS BUSINESS EXPENDITURE. 7. ON THE OTHER HAND, THE LD.DR RELIED ON THE ORDER S OF BOTH THE AUTHORITIES BELOW. 8. HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORDS. WE OBSERVED THAT THE AO LIBERALLY ALLOWED RS. 1,51,03,590/- AS DEDUCTION U/SEC. 36 & 37 OF THE ACT AS FOUND FROM P/L ACCOUNT UNDER THE HEAD ADMINISTRATIVE AND OTHER EXPENSES, WHICH, ADMITTED LY, IS INCLUSIVE OF SALARY AND ALLOWANCES AND STAFF WELFARE. REGARDING THE OTHER EXPENSES AS POINTED OUT BY THE LD.AR IE. (B) TO (I) OF SL. NO. 3 OF PAPER BOOK, IN OUR OPINION, CANNOT BE ALLOWED AS EX PENDITURE FOR THE REASON THAT THE ASSESSEE FAILED TO GIVE ANY DETAILS OF WORK EXECUTED ITA NO. 532/KOL/2015 PAGE | 5 BY IT AND HAS ALSO FAILED TO PRODUCE SUPPORTING EVI DENCE IN SUPPORT OF ITS CLAIM OF HAVING INCURRED EXPENDITURE. THEREBY T HE ORDER OF CIT-A IS JUSTIFIED ON THIS ISSUE. THEREFORE, GROUND NOS. 1 TO 3 INVOLVING THE ABOVE ISSUE RAISED BY THE ASSESSEE FAILS AND, ARE A CCORDINGLY, DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13. 12.2017. SD/ - SD/ J. SUDHAKAR REDDY S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :13. 12.2017 *PP/SPS COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT M/S. BLA JV, 3 RD FLOOR, INDICON VIVA, 10B, MIDDLETON ROW, 4 TH FLOOR, KOLKATA-69. 2 RESPONDENT THE DEPUTY COMMISSIONER OF INCOME TAX, CIR-31, KOLKATA, 10B, MIDDLETON ROW, 4 TH FLOOR, KOLKATA-71. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA //TRUE COPY// BY ORDER, SR.PS/H.O.O ITAT, KOLKATA