M/s. Tarmat Backbone JV, RAJKOT-GUJARAT V. The Assistant Commissioner of Income Tax, Circle-1, RAJKOT-GUJARAT

ITA 617/RJT/2012

• Counselvise Citation: 61724914 RSA 2012
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 07-03-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 12-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANKUR GARG
• Assessee Lawyers: DM RINDANI
• Keywords: Business expenditure; Corroborative evidences

Judgement Text

E : S : IN THE INCOME TAX APPELLATE TRIBULAL : RAJKOT BENCH : RAJKOT .. R, V .. , BEFORE SHRI T K SHARMA, JM AND SHRI D K SRIVASTA VA, AM ITA NO. 617/RJT/2012 LO O/ ASSESSMENT YEAR 200 3 - 0 4 M/S. TARMAT BACKBONE JV V. ACIT , CIRCLE 1 417, SHIVAM COMPLEX, RAJKOT DR YAGNIK ROAD, RAJKOT PAN: AAAAT 4404C DATE OF HEARING : 22 - 0 3 - 201 3 DATE OF PRONOUNCEMEN T : 12 - 0 4 - 201 3 ASSESSEE BY: SHRI D. M. RINDANI, CA REVENUE BY: SHRI ANKUR GARG, CIT (DR) / ORDER .. / D. K. SRIVASTAVA : T HE APPEAL FILED BY THE A SSESSEE IS DIRECTED AGAINST THE O RDER PASSED BY THE LD. CIT (A) - II, RAJKOT ON 04.09.2012. THE ASSESSEE IS A JOINT VENTURE COMPRISING OF M/S. T A R MAT INFRASTRUCTURE & ENGINEERING PVT. LT D. & M/S. BACKBONE ENTERPRISE LTD. WITH EFFECT FROM 23.07.2002. PRIOR TO 23.07.2002, M/S. BACKBONE ENTERP RISE WAS A FIRM. IT WAS CONVERTED INTO A LIMITED COMPANY UNDER PART IX OF THE COMPANIES ACT WITH EFFECT FROM 23.07.2002. IT MAY BE MENTIONED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CARRYING OUT HIGH - WAY PROJECTS WITHIN THE MEANING OF SECTION 80IA OF THE INCOME - TAX ACT. HOWEVER, DEDUCTION U/S 80IA IS AVAILABLE ONLY TO AN ENTERPRISE OWNED BY A COMPANY REGISTERED IN INDIA OR BY A CONSORTIUM OF SUCH COMPAN IES . IN ORDER TO AVAIL DEDUCTION U/S 80IA, THE AFORESAID FIRM , NAMELY , M/S. BACKBONE ENTERPRISE WAS CONVERTED FIRSTLY INTO A LIMITED LIABILITY COMPANY UNDER PART IX OF THE COMPANIES ACT AND THEREAFTER A JOINT VENTURE WAS CREATED. THE ASSESSEE HA S DECLARED NET PROFIT BEFORE TAXES FROM EXECUTION OF HIGHWAY PROJECTS AT RS.38,46,028/ - FOR THE ENTIRE YEA R , I.E. , FOR THE PERIOD PRIOR TO CREATION OF JOINT VENTURE AND ALSO AFTER CREATION OF THE JOINT VENTURE WITH EFFECT FROM 23.07.2002. SINCE DEDUCTION U/S 80IA WAS AVAILABLE ONLY TO THE JOINT VENTURE , THE QUESTION AROSE BEFORE THE ASSESSING OFFICER AS TO WH AT SHOULD BE THE PROFIT ALLOCABLE TO THE PERIOD AFTER CREATION OF THE JOINT VENTURE ON 23.07.2002. THE ASSESSEE SOUGHT TO ALLOCATE THE PROFIT OF RS.38,46,028/ - ON THE BASIS OF NUMBER OF DAYS PRIOR TO CREATION OF JOINT VENTURE AND AFTER THE CREATION OF JOI NT VENTURE WHICH ROUGHLY WORKED OUT 113 DAYS AND 252 DAYS. THE ASSESSEE THUS SOUGHT TO CALCULATE THE PROFIT OF THE JOINT VENTURE ON THE BASIS OF NUMBER OF DAYS AFTER THE CREATION OF JOINT VENTURE. THE ASSESSING O FFICER, ON THE OTHER HAND, PROCEEDED TO COM PUTE THE PROFIT BETWEEN BOTH THE AFORESAID PERIOD S ON THE BASIS OF THE AMOUNT SHOWN IN THE BILLS RAISED IN BOTH THE PERIODS. THE ASSESSING OFFICER NOTED M/S. BACKBONE ENTERPRISES HAD RAISED BILLS FOR RS.9.87 CRORES UPTO THE DATE OF CREATION OF JOINT 2 ITA 617 /RJT/201 2 VENTUR E AND RS.12.16 CRORES AFTER THE CREATION OF JOINT VENTURE TILL 31.03.2003. HE, THEREFORE, PROCEEDED TO ALLOCATE THE PROFIT OF THE ENTIRE YEAR ON THAT BASIS AND ACCORDINGLY QUANTIFIED THE PROFIT ELIGIBLE FOR DEDUCTION U/S 80IA AT RS.21,41,677/ - AS AGAINST R S.26,55,340/ - , CLAIMED BY THE ASSESSEE ON THE BASIS OF NUMBER OF DAYS. THE ACTION OF THE ASSESSING OFFICER WAS CHALLENGED BEFORE THE LD. CIT (A) WITHOUT SUCCESS. IN PARA 4.2 OF THE APPELLATE ORDER, THE LD. CIT (A) HAS GIVEN THE FOLLOWING REASONS FOR ENDO RSING THE ACTION OF THE ASSESSING OFFICER: - 4.2 I HAVE CONSIDERED THE FINDINGS GIVEN BY THE A.O. AND THE SUBMISSIONS OF THE AR OF THE APPELLANT. THE APPELLANTS ARGUMENT IS THAT THE DEDUCTION U/S 80IA SHOULD HAVE BEEN CALCULATED SOLELY ON THE BASIS O F NUMBER OF DAYS INSTEAD OF PRORATE BASIS AND NUMBER OF DAYS APPLIED BY THE A.O. HOWEVER, IN SUPPORT OF HIS CLAIM, THE APPELLANT HAS FAILED TO CITE ANY RELEVANT PROVISIONS OF THE ACT OR ANY JUDICIAL DECISION. IN ABSENCE OF ANY SUCH PRECEDENCE, THE ACTIO N OF THE AO IS HELD TO BE WELL - REASONED AND JUSTIFIABLE. IN FACT, THE APPELLANT SHOULD HAVE FILED TWO RETURNS FOR THIS ASSESSMENT YEAR BY DISCLOSING PROPER INCOME FOR THE PART PERIODS AS PER LAW AS DURING THE YEAR UNDER CONSIDERATION, THE ERSTWHILE FIRM H AS BEEN CONVERTED INTO A COMPANY W.E.F. 23.07.2002. IT WOULD HAVE BEEN A CORRECT APPROACH AS IT WOULD HAVE TAKEN CARE OF PRINCIPLES OF ACCOUNTING AS WELL AS THE RECEIPTS AND PAYMENTS MADE TILL THAT PARTICULAR PERIOD OF TIME. WHILE FINALIZING THE PROCEEDI NGS, THE A.O. HAS TAKEN THE BILLS RAISED BY THE COMPANY, I.E. M/S. BACKBONE ENTERPRISE LTD. FOR THE PERIOD 23.07.2002 TO 31.03.2003 AS BASIS WHICH ARE OF RS.12.16 CRORES WHEREAS THE FIRM HAS RAISED THE BILLS OF RS.9.87 CRORES IN RESPECT OF THE PERIOD COMME NCING FROM 01.04.2002 TO 22.07.2002. BY APPLYING THIS PRORATE BASIS, THE A.O. HAS RIGHTLY DENIED THE EXCESS CLAIM OF DEDUCTION U/S 80IA TO THE TUNE OF RS.5,13,663/ - . CONSIDERING THESE FACTS OF THE CASE, THIS GROUND OF APPEAL IS DISMISSED. 2 . AGGRIEVED BY THE AFORESAID ORDER, THE ASSESSEE IS NOW IN APPEAL BEFORE THIS TRIBUNAL. GROUND NO.2 TAKEN BY THE ASSESSEE READS AS UNDER: - 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL WHEREBY UPHOLDING THE ADD ITION MADE BY THE ASSESSING OFFICER, RESTRICTING DEDUCTION U/S 80IA TO THE TUNE OF RS.21,46,761/ - IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. 3 . IN SUPPORT OF APPEAL, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE APPROACH ADOPTED BY THE ASSESSING OFFICER IN ALLOCATION OF PROFIT BETWEEN THE TWO PERIODS ON THE BASIS OF BILLS RAISED WAS NOT A SOUND APPROACH AS EXPENSES INCURRED FOR EXECUTING THE CONTRACT W ERE SPREAD OVER THE ENTIRE YEAR. HE SUBMITTED THAT THE APPROACH ADOPTED BY THE ASSESSEE IN ALLOCATING THE PROFIT ON THE BASIS OF NUMBER OF DAYS WAS PROPER AND LOGICAL. 3 ITA 617 /RJT/201 2 4 . IN REPLY THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER PASSED BY THE LD. CIT(A). 5 . WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY CONSIDERED THEIR SUBM ISSIONS. THE JOINT VENTURE WAS CREATED WITH EFFECT FROM 23.07.2002 WITH A VIEW TO CLAIM DEDUCTION U/S 80IA. THE ONLY ISSUE THAT IS REQUIRED TO BE ADJUDICATED IS AS TO HOW THE PROFITS BETWEEN BOTH THE PERIODS SHOULD BE ALLOCATED. THE ASSESSING OFFICER HA S ALLOCATED THE PROFITS ON THE BASIS OF BILLS RAISED IN THE FIRST PERIOD , I.E. , BEFORE CREATION OF JOINT VENTURE AND THE BILLS RAISED IN THE SECOND PERIOD , I.E. , AFTER CREATION OF THE JOINT VENTURE. THE ASSESSEE, ON THE OTHER HAND, CLAIMS THAT THE PROFITS BETWEEN BOTH THE PERIOD S SHOULD BE ALLOCATED ON THE BASIS OF NUMBER OF DAYS. IN HUKUMCHAND MILLS LIMITED , 103 ITR 548, 552 (SC), IN THE CONTEXT OF APPORTIONING PROFIT S U NDER VARIOUS CATEGOR IES OF BUSINESS CAR RIED ON BY THE ASSESSEE IN BRITISH INDIA, IT WAS HELD THAT THE QUESTION AS TO THE METHOD OF APPORTIONMENT WAS ESSENTIALLY ONE OF THE FACT S DEPENDING UPON THE CIRCUMSTANCES OF THE CASE. IT WAS FURTHER HELD THAT, IN THE ABSENCE OF ANY STATUTORY OR OTHER FIXED FORMULA, ANY FINDING ON THE QUESTION OF PROPOR TION WOULD INVOLVE SOME ELEMENT OF GUESS WORK AND THAT ENDEAVOR COULD ONLY BE TO BE APPROXIMATE AND THE RE CANNOT IN THE VERY NATURE OF THINGS BE GREAT PRECISION AND EXACTNESS IN THE MATTER. 6 . AFTER HEARING BOTH THE PARTIES, WE ARE INCLINED TO AGREE WITH THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE PROFITS OF THE BUSINESS FOR THE PERIOD COMMENCING ON 23.07.2002 SHOULD BE WORKED ON THE BASIS OF NUMBER OF DAYS AND NOT ON THE BASIS OF THE AMOUNT SHOWN IN THE BILLS RAISED. THE APPROACH ADOPTED BY THE ASSESSEE, IN OUR VIEW, IS REASONABLE ON THE FACTS OF THE CASE. THE APPEAL FILED BY THE ASSESSEE IS, THEREFORE, ALLOWED. 7 . GROUND NO.1 TAKEN BY THE ASSESSEE READS AS UNDER: - 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, RAJKOT HAS ERR ED IN DISMISSING THE APPEAL WHEREBY UPHOLDING THE ADDITION OF RS.35,410/ - MADE BY THE ASSESSING OFFICER, ON ACCOUNT OF INTEREST ON TDS IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. 8 . THE ASSESSING OFFICER HAS MADE THE IMPUGNED DISALLOWANCE WITH THE FOLLO WING OBSERVATIONS: - 3. THE ABOVE JOINT VENTURE MEMBERS I.E. BACKBONE ENTERPRISE & TARMAT INFRASTRUCTURE & ENGINEERING PVT. LTD., A COMPANY INCORPORATED UNDER COMPANIES ACT, 1956 HAS MADE A JOINT VENTURE AGREEMENT ON 07.03.2001 TO CARRY OUT THE CONSTRUCTI ON OF FOUR LINE NATIONAL HIGHWAY BETWEEN 143 TO 160 KM ON GONDAL RIBDA SECTION OF NH NO.8B WITH THE EMPLOYER BEING NATIONAL HIGHWAY AUTHORITY OF INDIA (NHAI). THE ABOVE NHAI HAVE MADE AN AGREEMENT WITH THE ABOVE JOINT VENTURE FOR CONSTRUCTION OF THE ABOVE NATIONAL 4 ITA 617 /RJT/201 2 HIGHWAY AS PER AGREEMENT DATED 06.07.2001. THERE AFTER THE ABOVE TWO MEMBERS OF THE JOINT VENTURE HAVING SHARING RATION OF 50% EACH HAVE ENTERED INTO AN AGREEMENT ON 23.08.2001 FOR CARRYING OUT THE ABOVE WORK BY M/S. BACKBONE ENTERPRISE. ACCORD ING TO THE SAID AGREEMENT THE JOINT VENTURE WOULD BE ENTITLED FOR 1% INCOME TAX AND SURCHARGE AND ALSO 1% OF ADMINISTRATIVE CHARGES FROM CONTRACT BILL. 4. THE ABOVE SUB CONTRACTOR AS MEMBER OF JOINT VENTURE I.E. M/S. BACKBONE ENTERPRISE HAS CARRIED OUT TH E WORK AS PER THE BILLS RAISED FROM TIME TO TIME AND DEDUCTION OF TAX HAS ALSO BEEN RECOVERED. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE JOINT VENTURE IT IS NOTICED THAT THE SAID JOINT VENTURE HAS INCURRED EXPENSES TOWARDS PAYMENT OF INTEREST ON TDS AMOUNTING TO RS.35,410/ - INTERALIA IN ADDITION TO THE EXPENSES OF ACCOUNTANT SALARY, AUDIT FEES AND BANK CHARGES. SINCE THE PAYMENT OF INTEREST ON LATE PAYMENT OF TDS INTO GOVERNMENT ACCOUNT IS IN NATURE OF PENAL INTEREST, THE SAME CANNOT BE ALLOWED AS B USINESS EXPENDITURE AND AS SUCH ACCORDINGLY, THE SAME IS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 9 . ON APPEAL, THE LD CIT (A) HAS CONFIRMED THE ACTION OF THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS: - 3.2 I HAVE CONSIDERED THE RIVAL SUBMI SSIONS AND THE SUBMISSIONS OF THE AR OF THE APPELLANT THAT NO MALA - FIDE INTENTION WAS INVOLVED FOR DELAYED PAYMENT OF TDS IS WITHOUT ANY SUPPORT SO AS TO JUSTIFY THAT THE MISTAKE ON THE PART OF THE APPELLANT WAS BONA - FIDE ONE. BY MERELY SAYING THAT NO MAL A - FIDE INTENTION OR THERE WAS NO LOSS TO THE REVENUE THAT TOO WITHOUT ANY SUPPORTING EVIDENCE WILL NOT SERVE ANY PURPOSE. ON THE CONTRARY, THE A.O. IN HIS FINDINGS HAS DISCUSSED THIS ISSUE IN DETAIL IN PARA 3 & 4 OF THE ASSESSMENT ORDER FOR MAKING THE DIS ALLOWANCE. CONSIDERING THE FACTS OF THE CASE, THIS GROUND OF APPEAL STANDS DISMISSED. 1 0 . IN SUPPORT OF APPEAL, THE LD AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE IMPUGNED INTEREST PAID BY THE ASSESS EE ON DELAY ED PAYMENT OF TDS SHOULD BE ALLOWED AS BUSINESS EXPENDITURE. 1 1 . IN REPLY, THE LD DR SUPPORTED THE ORDER PASSED BY THE AO / CIT(A). 1 2 . WE HAVE HEARD BOTH THE PARTIES. LD. CIT(A) HAS GIVEN COGENT REASONS IN SUPPORT OF HIS DECISION. LD. AUTHORISED REPRESENTATIVE FOR THE ASSESSE E COULD NOT POINT OUT ANY INFIRMITY IN HIS ORDER. HIS ORDER IN THIS BEHALF IS THEREFORE CONFIRMED. G ROUND NO.1 TAKEN BY THE ASSESSEE IS DISMISSED. 1 3 . GROUND NO.3 TAKEN BY THE ASSESSEE READS AS UNDER: - 5 ITA 617 /RJT/201 2 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL WHEREBY UPHOLDING THE DECISION OF ASSESSING OFFICER IN INITIATING PENALTY U/S 271(1)(C) OF THE IT ACT IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. 1 4 . WE HAVE HEARD BOTH THE PARTIES. MERE INITIATION OF PENALT Y U/S 271(1)(C) IS NOT APPEALABLE. IT IS, THEREFORE, DISMISSED. 1 5 . GROUND NO.4 TAKEN BY THE ASSESSEE READS AS UNDER: - THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - II, RAJKOT HAS ERRED IN DISMISSING THE APPEAL WHEREBY UPHOLDING THE DECISION OF ASS ESSING OFFICER IN CHARGING INTEREST U/S 243A, 234B, 234C & 234D IS UNWARRANTED, UNJUSTIFIED AND BAD IN LAW. 1 6 . WE HAVE HEARD BOTH THE PARTIES. LEVY OF INTEREST UNDER THE AFORESAID PROVISIONS IS CONSEQUENTIAL AND MANDATORY. GROUND NO.4 IS, THEREFORE, DIS MISSED. 1 7 . THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. N 12 .04 . 2013 N ORDER PRONOUNCED ON 12 .04 . 201 3 SD/ - SD/ - ( E.. O / T. K. SHARMA) ( .. A / D. K. SRIVASTAVA) SL A / JUDICIAL MEMBER 2013 / ACCOUNTANT MEMBER RAJKOT : 12 . 0 4.2013 B T 0' 0 / COPY OF ORDER FORWARDED TO: - . / APPELLANT - . M/S. TARMET BACKBONE JV, 417, SHIVAM COMPLEX, DR.YAGNIK ROAD, RAJKOT 2. V / RESPONDENT - THE ACIT, CIRCLE - 1, RAJKOT 3. T / CONCERNED CIT 4. T - / CIT (A) - II, RAJKOT 5. VLL, E , / DR, ITAT, RAJKOT 6. O / GUARD FILE. / BY ORDER , TRUE COPY SENIOR PRIVATE SECRETARY, ITAT, RAJKOT