Chandragiri constructions, Kasargode V. ACIT, Calicut

ITA 643/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61437 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 29-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: C B M WARRIER
• Keywords: Income from undisclosed sources

Judgement Text

1 ITA NO. 643/COCH/2010 ITA NO. 660/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKARA N(AM) I.T.A NO. 660/COCH/2010 (ASSESSMENT YEAR 2007-08) A.C.I.T., CENT.CIR.1 VS M/S CHANDRAGIRI CONSTRU CTION CO CALICUT (PO) THEKKIL, KASARGOD PAN : AABFC7523K (APPELLANT) (RESPONDENT) I.T.A NO. 643/COCH/2010 (ASSESSMENT YEAR 2007-08) M/S CHANDRAGIRI CONSTRUCTION CO VS THE A.C.I.T., CENT.CIR.1 (PO) THEKKIL, KASARGOD CALICUT (APPELLANT) (RESPONDENT) REVENUE BY : SMT. VIJAYAPRABHA ASSESSEE BY : SHRI C.B.M. WARRIER DATE OF HEARING : 03-04-2012 DATE OF PRONOUNCEMENT : 27-04-2012 O R D E R PER N.R.S. GANESAN (JM) BOTH THE ASSESSEE AND THE REVENUE FILED THE PRESEN T APPEALS AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX(A)-I, KOCHI DATED 27-09-2010 FOR THE ASSESSMENT YEAR 2007-08. THEREFORE, BOTH THE APPEA LS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2 ITA NO. 643/COCH/2010 ITA NO. 660/COCH/2010 2. LET US FIRST TAKE THE REVENUES APPEAL IN ITA NO. 660/COCH/2010. 3. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DELET ION OF ADDITION MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS.1,73,99,835 O N ACCOUNT OF RETENTION MONEY IN THE CONTRACT RECEIPT. THE CONTENTION OF THE REV ENUE IS THAT THE COMMISSIONER OF INCOME-TAX(A) DELETED THE ADDITION MADE BY THE AS SESSING OFFICER BY FOLLOWING THE JUDGMENT OF THE KERALA HIGH COURT IN JANATHA CO NTRACT CO VS COMMISSIONER OF INCOME-TAX (1970) 105 ITR 627 (KER). ACCORDING TO TH E LD.DR, THIS JUDGMENT OF THE KERALA HIGH COURT WAS PRIOR TO THE NOTIFICATION OF T HE CBDT NO.5069(3) DATED 20- 01-1996 (218 ITR (81)/124. ACCORDING TO THE LD.DR, AFTER THE NOTIFICATION OF CBDT DATED 20-01-1996 THE RETENTION MONEY RETAINED BY THE CONTRACTEE IS ALSO LIABLE FOR TAXATION. THE LD.DR FURTHER CONTENDED THAT THE ASSESSEE WAS FOLLOWING ACCOUNTING STANDARD-7. AFTER THE INTRODUCTION OF AC COUNTING STANDARD-7, ACCORDING TO THE LD.DR, THE JUDGMENT OF THE KERALA H IGH COURT MAY NOT BE APPLICABLE TO THE FACTS OF THE CASE. ACCORDING TO THE LD.DR, RETENTION MONEY IS NOTHING BUT APPLICATION OF INCOME ACCRUED TO THE AS SESSEE BY THE CONTRACTEE AS PER THE TERMS OF THE AGREEMENT. THEREFORE, THE ASS ESSEE HAS TO OFFER THE SAME FOR TAXATION IN THE YEAR OF ACCRUAL. 4. ON THE CONTRARY, SHRI C.B.M. WARRIER, THE LD.REP RESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE RETENTION MONEY IS RETA INED BY THE CONTRACTEE TOWARDS DEFECTS IN THE SERVICES AS PER THE TERMS OF AGREEMENT. THIS AMOUNT IS DUE TO THE ASSESSEE ONLY AFTER COMPLETION OF THE PE RIOD AGREED BETWEEN THE PARTIES. ACCORDING TO THE LD.REPRESENTATIVE, THE A CCRUAL OF THE AMOUNT WAS POSTPONED AS PER THE TERMS OF THE AGREEMENT. THERE FORE, THE JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF JANATHA CONTRACT CO MPANY (SUPRA) IS APPLICABLE. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT AN IDE NTICAL ISSUE WAS DECIDED BY 3 ITA NO. 643/COCH/2010 ITA NO. 660/COCH/2010 THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEARS 2003-04 TO 2005-06 IN ITA NOS 832, 857, 681 & 861/COCH/2008. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE OF ASS ESSABILITY OF THE RETENTION MONEY BY THE CONTRACTEE WAS SUBJECT MATTER OF APPEA L BEFORE THIS TRIBUNAL FOR THE ASSESSMENT YEARS 2002-03, 2003-04, 2004-05 AND 200 5-06. FOR THE ASSESSMENT YEAR 2002-03 THIS TRIBUNAL FOUND THAT THE MONEY RETAINED BY THE CONTRACTEE WAS NOT DUE TO THE ASSESSEE, THEREFORE, NOT TAXABLE. IT IS TAXABLE ONLY IN THE YEAR IN WHICH THE ASSESSEE HAS THE RIGHT TO RECEIVE THE MONEY. A SIMILAR VIEW WAS TAKEN BY MAJORITY OPINION FOR THE ASSESSMEN T YEARS 2003-04 TO 2005-06. SINCE THE FACTS ARE IDENTICAL, BY FOLLOWING THE ORD ERS OF THE CO-ORDINATE BENCH OF THE TRIBUNAL, WE HOLD THAT THE RETENTION MONEY HAS TO BE TAXED ONLY WHEN THE ASSESSEE GETS A RIGHT TO RECEIVE THE SAME. SO LONG AS THE ASSESSEE HAS NO RIGHT TO RECEIVE THE MONEY, IT CANNOT BE SUBJECT MATTER OF T AXATION. BY FOLLOWING THE ORDERS OF THIS TRIBUNAL FOR THE ASSESSMENT YEARS 20 03-04 TO 2005-06 WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME-TAX(A). 6. NOW COMING TO THE APPEAL OF THE ASSESSEE IN ITA NO.643/COCH/2010, THE FIRST ISSUE ARISES FOR CONSIDERATION IS DISALLOWANC E OF LABOUR CHARGES TO THE EXTENT OF RS. 4,15,340. 7. SHRI C.B.M, WARRIER, THE LD.REPRESENTATIVE FOR T HE ASSESSEE SUBMITTED THAT THE ASSESSEE HAS DEBITED RS.4,15,33,984 TOWARDS LAB OUR CHARGES. ACCORDING TO THE LD.REPRESENTATIVE FOR THE ASSESSEE, IT IS VERY DIFFICULT TO GET VOUCHERS FROM THE LABOURERS. THE PAYMENTS WERE MADE IN CASH THROUGH SUPERVISORS AND THE BILLS WERE RAISED IN THE NAME OF THE SUPERVISORS BY WAY O F SELF MADE VOUCHERS. 4 ITA NO. 643/COCH/2010 ITA NO. 660/COCH/2010 ACCORDING TO THE LD.REPRESENTATIVE, SINCE THE PAYME NTS WERE MADE THROUGH SUPERVISORS, THE ONLY POSSIBLE WAY OF SUPPORTING TH E PAYMENT IS BY PREPARING THE SELF MADE VOUCHERS. THEREFORE, THE DISALLOWANCE OF RS.4,15,340 IS NOT JUSTIFIED. 8. ON THE CONTRARY, SMT. VIJAYAPRABHA, THE LD.DR SU BMITTED THAT THE ASSESSEE HAS PRODUCED ONLY SELF MADE VOUCHERS AND THEY ARE N OT VERIFIABLE. THE ASSESSING OFFICER HAS DISALLOWED ONLY 1% OF THE TOTAL CLAIM O F RS. 4,15,33,984. THEREFORE, THE COMMISSIONER OF INCOME-TAX(A) HAS RIGHTLY CONFIR MED THE ADDITION MADE BY THE ASSESSING OFFICER. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO VERIFIED THE MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMI TTED BY THE LD.DR, THE TOTAL EXPENSES TOWARDS LABOUR CHARGES ARE RS. 4,15,33,984 . THOUGH THE PAYMENTS WERE CLAIMED TO BE MADE THROUGH SUPERVISORS, THE FA CT REMAINS IS THAT THE ASSESSEE HAS PREPARED ONLY SELF MADE VOUCHERS, WHIC H ARE NOT VERIFIABLE AT ALL. THEREFORE, THE ASSESSING OFFICER HAS DISALLOWED 1% OF THE TOTAL PAYMENT WHICH COMES TO RS.4,15,340. CONSIDERING THE VOLUME OF EX PENDITURE TO THE EXTENT OF RS.4,15,33,984 WHICH WAS NOT SUPPORTED BY PROPER VO UCHERS, THIS TRIBUNAL IS OF THE OPINION THAT THE ASSESSING OFFICER HAS TAKEN A V ERY REASONABLE VIEW IN DISALLOWING 1% OF THE TOTAL EXPENDITURE. THEREFORE , THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOM E-TAX(A). ACCORDINGLY, THE SAME IS CONFIRMED. 10. THE NEXT GROUND OF APPEAL IS WITH REGARD TO ASS ESSMENT OF RS.12,51,470 AS INCOME FROM UNDISCLOSED SOURCES. 5 ITA NO. 643/COCH/2010 ITA NO. 660/COCH/2010 11. SHRI C.B.M. WARRIER, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE CLAIMED INCOME FROM AGRICULTURE TO THE EXTENT OF RS.12,51,470. THE AGRICULTURAL INCOME WAS CREDITED IN THE PARTNERS C APITAL ACCOUNT AND THE PROFIT & LOSS ACCOUNT. ACCORDING TO THE LD.REPRESENTATIVE, THE ASSESSEE HAS RECEIVED AGRICULTURAL INCOME BY CULTIVATING THE LEASEHOLD LA ND. HOWEVER, THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE DOES NOT OWN ANY LAND AT ALL. REFERRING TO THE ORDER OF THE SETTLEMENT COMMISSION DATED 04-03-2008 THE LD.REPRESENTATIVE SUBMITTED THAT THE SETTLEMENT COMMISSION PERMITTED TO INCORPORATE THE BALANCES AS PER THE UNACCOUNTED BALANCE-SHEET WHICH WAS BASED ON UNACCOUNTED CASH FL OW STATEMENT FOR THE PERIOD 01-04-1995 TO 31-03-2001. THEREFORE, AS PER THE ORDER OF SETTLEMENT COMMISSION, THE ASSESSEE SHOULD BE PERMITTED TO CAP ITALISE THE AMOUNT AVAILABLE DURING THE BLOCK PERIOD. 12. ON THE CONTRARY, SMT. VIJAYAPRABHA, THE LD.DR S UBMITTED THAT THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2007-08. THE SETTLEMENT COMMISSION PERMITTED THE ASSESSEE TO INCORPORATE THE BALANCES ON THE BASIS OF THE UNACCOUNTED CASH FLOW STATEMENT FOR THE PERIOD FROM 01-04-1995 TO 31-03-2001. SINCE THE PRESENT ASSESSMENT YEAR FALLS BEYOND THE PERIOD FOR WHICH THE SETTLEMENT COMMISSIONE PERMITTED THE ASSESSEE TO CA PITALIZE THE AMOUNT BASED ON THE UNACCOUNTED CASH FLOW STATEMENT, ACCORDING T O THE LD.REPRESENTTIVE, THE AMOUNT DETERMINED IN THE BLOCK PERIOD BY THE SETTLEM ENT COMMISSIONER CANNOT BE CONSIDERED FOR THE YEAR UNDER CONSIDERATION. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE CON TENDS THAT IT WAS CULTIVATING THE LEASEHOLD LAND. HOWEVER, NO MATERIAL IS AVAILA BLE ON RECORD TO SUGGEST THAT 6 ITA NO. 643/COCH/2010 ITA NO. 660/COCH/2010 THE ASSESSEE HAS TAKEN THE LAND ON LEASE OR IT HAS C ULTIVATED ANY OF THE LANDS. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT IT H AS RECEIVED INCOME FROM AGRICULTURAL OPERATION IS NOT JUSTIFIED. NOW COMIN G TO THE CONTENTION OF THE LD.REPRESENTATIVE FOR THE ASSESSEE THAT THE AMOUNT DETERMINED BY THE SETTLEMENT COMMISSIONE HAS TO BE CAPITALIZED FOR THE YEAR UNDE R CONSIDERATION, AS RIGHTLY SUBMITTED BY THE LD.DR, THE SETTLEMENT COMMISSION P ERMITTED THE ASSESSEE TO CAPITALIZE THE AMOUNT BASED ON UNACCOUNTED CASH FLO W STATEMENT FOR THE PERIOD 01-04-1995 TO 31-03-2001. THE ASSESSMENT YEAR UNDER CO NSIDERATION IS 2007-08. THEREFORE, THE PERMISSION SAID TO BE GRANTED BY THE SETTLEMENT COMMISSION CANNOT BE EXTENDED TO THE ASSESSMENT YEAR UNDER CON SIDERATION. IN THOSE CIRCUMSTANCES, THIS TRIBUNAL IS OF THE OPINION THAT THE ASSESSING OFFICER HAS RIGHTLY ASSESSED THE INCOME AS INCOME FROM UNDISCLOSED SOU RCES. THIS TRIBUNAL DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LOWER AUTHOR ITY. ACCORDINGLY, THE SAME IS CONFIRMED. 14. THE NEXT GROUND OF APPEAL IS WITH REGARD TO LOS S ON ACCOUNT OF TERMINATION OF CONTRACT. 15. SHRI C.B.M WARRIER, THE LD.RPERESENTATIVE FOR T HE ASSESSEE SUBMITTED THAT AN AMOUNT OF RS. 1,96,16,000 WAS DISALLOWED OUT OF THE LOSS CLAIMED ON ACCOUNT OF TERMINATION OF CONTRACT. ACCORDING TO THE LD.RE PRESENTATIVE, THE ARBITRATION PROCEEDINGS ARE PENDING ON ACCOUNT OF TERMINATION O F THE CONTRACT WORK. THE CONTRACTEE ENHANCED THE BANK GUARANTEE GIVEN BY THE ASSESSEE. THE PROJECT WAS TERMINATED DUE TO NON PERFORMANCE OF WORK OR ESCALAT ION OF THE COST OF MATERIAL. ONCE THE PROJECT WAS TERMINATED DUE TO NON PERFORMA NCE AND CONTRACTEE ENHANCED THE BANK GUARANTEE, THE ASSESSEE HAS SUFFER ED LOSS IN THE COURSE OF THE BUSINESS ACTIVITY. THEREFORE, THE LOSS CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED 7 ITA NO. 643/COCH/2010 ITA NO. 660/COCH/2010 EVEN THOUGH THE ARBITRATION PROCEEDINGS ARE PENDING . THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT AS SOON AS THE ARBITRATION P ROCEEDINGS ARE CONCLUDED, FINALLY, THE ASSESSEE WILL OFFER THE SAME AS INCOME . THEREFORE, FOR THE PRESENT, IT HAS TO BE ALLOWED AS BUSINESS LOSS. 16. ON THE CONTRARY, THE LD.DR SUBMITTED THAT THE C ONTRACTEE HAS ENHANCED THE BANK GUARANTEE TO THE EXTENT OF RS.1,31,23,000. THE ASSESSEE MADE ADDITIONAL CLAIM BY WRITING OFF THE EXPENSES TO THE EXTENT OF RS.64,93,000. ADMITTEDLY, THE ARBITRATION PROCEEDINGS ARE PENDING AND IT IS HAS NOT REACHED FINALITY. ACCORDING TO THE LD.DR, THE ASSESSEE IS MAINTAINING ACCOUNTS ON MERCANTILE SYSTEM. THE AMOUNT RECOVERED BY THE CON TRACTEE BY ENHANCING THE BANK GUARANTEE IS ONLY AN ADHOC ARRANGEMENT. ACCORD ING TO THE LD.DR, UNLESS AND UNTIL THE ARBITRATION PROCEEDINGS ARE CONCLUDED AND REACHED FINALITY, THE ASSESSEE CANNOT CLAIM ANY AMOUNT AS BUSINESS LOSS. ACCORDING TO THE LD.REPRESENTATIVE, THE CLAIM OF THE ASSESSEE TO THE EXTENT OF RS.1,96,16,000 IS PREMATURE. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE BANK GUARANTEE OFFERED BY THE ASSESSEE WAS ENHANCED BY THE CONTRACTEE ON TERMINAT ION OF THE CONTRACT DUE TO ESCALATION OF THE COST. THE PROJECT WAS NOT COMPLE TED. THE QUESTION ARISES FOR CONSIDERATION IS WHEN THE ARBITRATION PROCEEDINGS A RE PENDING CAN THE ASSESSEE CLAIM THE LOSS SAID TO BE SUFFERED AS A BUSINESS LO SS? THIS TRIBUNAL IS OF THE OPINION THAT FOR THE PRESENT, THE ASSESSEE HAS SUFF ERED LOSS SINCE THE CONTRACTEE ENHANCED THE BANK GUARANTEE. THEREFORE, FOR THE YEA R UNDER CONSIDERATION THERE WAS A BUSINESS LOSS. ADMITTEDLY, THE ARBITRATION P ROCEEDINGS ARE PENDING. THEREFORE, WHENEVER, THE ARBITRATION PROCEEDINGS AR E COMPLETED AND SUBJECT TO 8 ITA NO. 643/COCH/2010 ITA NO. 660/COCH/2010 THE DECISION OF THE ARBITRATION PROCEEDINGS THE ASS ESSEE HAS TO NECESSARILY OFFER THE AMOUNT FOR TAXATION. THIS TRIBUNAL IS OF THE O PINION THAT SINCE FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS SUFFERED LOSS, IT HAS TO BE ALLOWED A BUSINESS LOSS. THEREFORE, WE HOLD THAT THE COMMISS IONER OF INCOME-TAX(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. WE REVERSE THE ORDERS OF AUTHORITIES BELOW AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF RS.64,93,000 MADE BY THE ASSESSEE TOWA RDS PAYMENT OF BANK GUARANTEE ON TERMINATION OF WORK. 18. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH DAY OF APRIL, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 27 TH APRIL, 2012 PK/- COPY TO: 1. A.C.I.T., CENT.CIR.1, CALICUT 2. M/S CHANDRAGIRI CONSTRUCTION CO (PO), THEKKIL, KASARGO D 3. COMMISSIONER OF INCOME-TAX(A)-I, KOCHI 4. C.I.T CONCERNED 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH