ITO, Nashik V. Dhatrak Constructioon Co., Nashik

ITA 596/PUN/2009

• Counselvise Citation: 59624514 RSA 2009
• Duration Of Justice: 2 year(s) 3 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 14-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY SINGH
• Keywords: Reopening of assessment; Reason to believe; Reassessment proceedings
• Section: 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 596/PN/2009 : A.Y. 2005-06 I.T.O. WARD 1(2) NASIK APPELLANT VS. DHATRAK CONSTRUCTION CO. OFFICE NO. 1 & 3 BUILDING NO. 4 STADIUM COMPLEX M.G. ROAD, NASIK AAEFD 1142L RESPONDENT APPELLANT BY: SHRI SANJAY SINGH RESPONDENT BY: SHRI NIKHIL PATHAK ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDERS OF THE CIT(A)-I NASIK DATED 23-2-2009 FOR A. Y. 2005- 06 ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A)-1 NASIK ERRED IN DECIDING T HE ISSUE OF REOPENING OF ASSESSMENT U/S 147 AND ISSUE OF NOTICE U/S 148 ON THE BASIS OF INCORRECT REASON REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT AND CONSEQUENTLY RE-ASSESSMENT PROCEEDINGS ARE BAD IN LAW. 2. THE LEARNED CIT(A)-I NASIK IS ERRED IN DELETING THE ADDITION OF RS. 12,10,872/- MADE BY THE A.O ON ACCOUNT OF PROPORTIONATE INDIRECT EXPENDITURE AND ACCEPTING ASSESSEES VALUATION OF WIP WITHOUT CONSIDERING INDIRECT COSTS STATING THAT THE RELIANC E OF A.O ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD, REPORTED AT 188 ITR 44 IS MISPLACED. 2 ITA NO. 596/PN/2009 DHATRAK CONSTRUCTION A.Y. 2005-06 3. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDE R OF THE A.O. 4. IT IS THEREFORE PRAYED THAT THE ORDER OF THE CIT (A)- 1 NASIK BE VACATED AND THAT OF THE A.O TO BE RESTOR ED AS THE DECISION OF THE CIT-1 NASIK TREATING THE IS SUE OF NOTICE U/S 148 (ACTION U/S 147) ON THE BASIS OF INCORRECT REASON TO BELIEVE AND CONSEQUENTIAL REASSESSMENT PROCEEDINGS BAD IN LAW IS NOT ACCEPTAB LE AS THE A.O HAS RIGHTLY REOPEN THE ASSESSMENT U/S 14 7 FOR TAXING THE ESCAPED INCOME CORRECTLY RELYING UPO N THE DECISION OF CIT VS. BRITISH PAINTS INDIA LTD. REPORTED AT 188 ITR 44. 2. THE RELEVANT FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF BUILDER S AND DEVELOPERS. THE ASSESSEE HAS MAINTAINED REGULAR BOO KS OF ACCOUNTS AND THE SAME WERE AUDITED U/S 44AB OF THE ACT AND FILED SUCH REPORT IN FORM NO. 3CB AND 3CD AND A UDITED FINAL STATEMENTS OF ACCOUNTS ALONG WITH THE RETURN OF INCOME. THE RETURN OF INCOME WAS FILED BY THE ASSE SSEE ON 30-10-2005 DECLARING TOTAL INCOME OF RS. 4,62,743/- WHICH WAS PROCESSED U/S 143(1)(A) OF THE ACT ON 31-10-200 5. DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER NOTICED THAT IN THE CONSTRUCTION TRADING ACCOUNT TH E ASSESSEE HAS SHOWN WORK IN PROGRESS AMOUNTING TO RS . 2,81,91,825/- AND THAT IN THE P & L ACCOUNT THE ASS ESSEE HAS DEBITED AN AMOUNT OF RS. 15,52,400/- TOWARDS IN DIRECT EXPENDITURE. ACCORDING TO THE ASSESSING OFFICER, T HE SALES EFFECTED WERE 22% AND WIP WAS 78% AND THE PROPORTIO NATE INDIRECT EXPENDITURE SHOULD HAVE BEEN ADDED TO THE CLOSING 3 ITA NO. 596/PN/2009 DHATRAK CONSTRUCTION A.Y. 2005-06 WIP TO ARRIVE AT CORRECT PROFIT FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER THEREFORE, WO RKED OUT THE INCOME THAT HAD ESCAPED ASSESSMENT AT 78% OF RS . 15,52,400/-. HE ACCORDINGLY REOPENED THE ASSESSMEN T U/S 147 AND COMPLETED SUCH ASSESSMENT BY MAKING AN ADDI TION OF RS. 12,10,872/- TO THE RETURNED INCOME. 3. ON APPEAL, THE CIT(A) HAS DEALT WITH THIS ISSUE IN PARA 5 OF HIS ORDER IN FAVOUR OF THE ASSESSEE. IN THE S AID ORDER, THE CIT(A) HELD THAT THE IMPUGNED INDIRECT EXPENSES ARE NOT ATTRIBUTABLE TO THE WIP ACCOUNT. THE CIT(A) HE LD THAT THE JUDGMENT RELIED UPON BY THE REVENUE IN THE CASE OF CIT VS. BRITISH PAINTS INDIA LTD. (188 ITR 44) IS MISPL ACED. THE CIT(A) ACCORDINGLY DELETED THE ADDITION OF RS. 12,1 0,872/- MADE BY ASSESSING OFFICER. ON THE ISSUE OF NOTICE U /S 148 AND CONSEQUENTIAL RE-ASSESSMENT U/S 147 OF THE ACT, THE CIT(A) HAS DEALT WITH THE SAME BY OBSERVING AS UNDE R: GROUND NO. 1 OF APPELLANT IS TECHNICAL GROUND OBJECTING TO THE ISSUE OF NOTICE U/S 148 AND CONSEQUENTIAL REASSESSMENT U/S 147 OF THE ACT. AS ALREADY DISCUSSED IN THE EARLIER PARAGRAPHS, THE A. OS REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSME NT IN THE CASE OF APPELLANT WAS APPARENTLY INCORRECT A ND THEREFORE THE NOTICE ISSUED ON THE BASIS OF SUCH INCORRECT REASON TO BELIEVE AND CONSEQUENTIAL RE- ASSESSMENT PROCEEDINGS ARE BAD IN LAW. THE AFORESAID DECISION OF THE CIT(A) HAS BEEN CHALL ENGED BY THE REVENUE BEFORE US. 4 ITA NO. 596/PN/2009 DHATRAK CONSTRUCTION A.Y. 2005-06 4. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE ORDER OF THE C IT(A) DOES NOT CALL FOR INTERFERENCE AT OUR HANDS. WE FI ND FROM THE AUDITED CONSTRUCTION TRADING ACCOUNT THAT IN AD DITION TO THE COST OF RAW MATERIAL, DIRECT COSTS LIKE LABO UR CHARGES, BANK AND HDFC INTEREST, TRANSPORTATION AND WATER CHARGES ARE DEBITED TO CONSTRUCTION TRADING ACCOUNT AND WERE INCLUDED IN CLOSING WIP. IT IS ALSO SEEN THAT THE INDIRECT EXPENSES ARE DEBITED TO THE P & L ACCOUNT. THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE JUD GMENT OF HONBLE SUPREME COURT IN THE CASE OF BRITISH PAINTS INDIA LTD. (SUPRA) WAS RIGHTLY HELD TO BE MISPLACED BY TH E CIT(A) IN VIEW OF THE FACT THAT IN THE CASE OF BRITISH PAI NTS INDIA LTD., (SUPRA) THE ISSUE WAS THAT THE FINISHED GOODS AND WORK IN PROGRESS WAS VALUED AT MATERIAL COST ONLY A ND OTHER MANUFACTURING COSTS LIKE LABOUR ETC. WERE TOT ALLY EXCLUDED. FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF BRITISH PAINTS LTD. (SUPRA) OBSERVED THAT THE AS SESSEE HAS VALUED THE CLOSING WIP AT THE COST OF RAW MATER IAL IGNORING OTHER MANUFACTURING COSTS WHEREAS IN THE P RESENT CASE THE ASSESSEES ALL DIRECT COSTS ATTRIBUTABLE T O WIP I.E. LABOUR, INTEREST, TRANSPORTATION AND WATER COSTS WE RE TAKEN INTO ACCOUNT TO ARRIVE AT THE WIP. IN VIEW OF THIS , THE CIT(A) WAS JUSTIFIED IN HOLDING THAT NOTICE U/S 148 IS BAD 5 ITA NO. 596/PN/2009 DHATRAK CONSTRUCTION A.Y. 2005-06 IN LAW AND CONSEQUENTIAL ASSESSMENT PROCEEDING IS A LSO BAD IN LAW. AS FAR AS LEGAL ISSUE IS CONCERNED, THE CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSING OFFICER S REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT WAS APPARENTLY INCORRECT AND THEREFORE THE NOTICE ISSUE D ON THE BASIS OF SUCH INCORRECT REASON TO BELIEVE AND CONSEQUENTIAL REASSESSMENT PROCEEDINGS ARE BAD IN L AW. IN VIEW OF THE ABOVE DISCUSSIONS, WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE CIT(A) AND THE SAME IS UPHELD. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. DECISION IS PRONOUNCED IN THE OPEN ON 25 TH AUGUST 2011. S D/ - (G.S. PANNU) ACCOUNTANT MEMBER S D/ - (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE DATED THE 25 TH AUGUST 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT I NASIK 4. CIT(A)-I NASIK 4. THE D.R, A BENCH, PUNE 6. GUARD FILE BY ORDER ASSTT. REGISTRAR, ITAT PUNE