Gardenia Apartment Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-4(1), Ahmedabad

ITA 663/AHD/2010

• Counselvise Citation: 66320514 RSA 2010
• Duration Of Justice: 2 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 27-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 02-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SHANKAR SRDR
• Keywords: Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI, A.K.GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.663/AHD/2010 ASSESSMENT YEAR: 2006-07 GARDENIA APARTMENT PVT. LTD., 5, SHRIMALI SOCIETY, NR. JAIN DERASAR NAVANGPURA, AHMEDABAD -380 009 [ PAN NO.AACCG 1294M ] V/S . INCOME TAX OFFICER, WARD-4(1), AHMEDABAD / APPELLANT .. / RESPONDENT) /BY APPELLANT SHRI RAJESH C. SHAH, AR /BY RESPONDENT SHRI T. SHANKAR, SR-DR /DATE OF HEARING 27-08-2012 /DATE OF PRONOUNCEMENT 12-10-2012 O R D E R PER KUL BHARAT, JUDICIAL MEMBER:- THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VIII, AHMEDABA D (CIT(A) FOR SHORT) DATED 28-10-2009 FOR THE ASSESSMENT YEAR (AY) 2006- 07. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. THAT THE C.I.T.(APPEALS) ERRED IN CONFIRMING TH E TAXING OF THE ENTIRE AMOUNT OF CONTRIBUTION OF RS.75,06,811 RECEIVED DUR ING THE YEAR UNDER APPEAL FROM THE MEMBERS FOR THE PURPOSE OF THE MEET ING THE COST OF RESIDENTIAL UNITS/FLATS ON THE ALLEGED GROUND THAT THE APPELLANT CARRIED ON AN ADVENTURE IN THE NATURE OF TRADE WITHOUT APPRECI ATING THE FACTS OF THE CASE AS MENTIONED IN THE STATEMENT OF FACTS FILED B EFORE THE LEARNED CIT(A) MERELY BECAUSE THE AMOUNT SO RECEIVED WAS WR ONGLY SHOWN UNDER THE HEAD UNSECURED LOANS BY THE AUDITORS IN THE BALANCE SHEET ITA NO.663/AHD/2010 A.Y. 2006-07 GARDENIA APARTMENT PVT. LTD. V. ITO WD-4(1) ABD PAG E 2 AS ON 31-3-2006 AND THE MEMBERS DID NOT ACCEPT THAT THE SAME WAS GIVEN BY WAY OF UNSECURED LOANS. IT IS SUBMITTED THAT THE IN VIEW OF THE FACTS MENTIONED IN THE SAID STATEMENT OF FACTS, THE SAID AMOUNT CAN NOT BE TAXED AS THE SALE VALUE OF THE RESIDENTIAL UNITS/FLATS AND, THEREFORE , THE SAID ADDITION BE DELETED. WITHOUT 9PREJUDICE TO THE ABOVE GROUND OF APPEAL, 2. THAT THE C.IU.T./(A) FURTHER ERRED IN CONFIRMING THE TAXING OF THE ENTIRE AMOUNT OF RS.7506811 RECEIVED DURING THE YEAR FROM THE MEMBERS FOR MEETING THE COST OF THE RESIDENTIAL UNITS/FLATS WIT HOUT ALLOWING THE DEDUCTION FOR THE CORRESPONDING COST THEREOF WHICH IS EVIDENT FRO M THE BALANCE SHEET AS ON 31-3-2006 FURNISHED TO THE A.O IT IS SUBMITTED THAT THE WORK OF CONSTRUCTION WAS INCOMPLETE AS ON 31-3-2006 CANNOT BE CONSIDERED AS THE SALE VALUE OF THE WORK CARRIED OUT TILL 31-3-2006 BUT HAS TO BE T REATED AS AN ADVANCE FOR THE FURTHER COST TO BE INCURRED IN THE SUBSEQUENT YEAR. IT IS SUBMITTED THAT, EVEN IF THE GROUND NO.1 IS DECIDED AGAINST THE APPELLANT, T HE ULTIMATE SURPLUS OF RS.46352 ONLY CAN BE TAXED AS AN INCOME IN THE NEXT YEAR I.E. YEAR OF COMPLETION AND, THEREFORE, THE ENTIRE ADDITION OF R S.7506811 BE DELETED OR THE SAME BE REDUCED TO RS.46352 IF THE SURPLUS IS TO BE TAXED IN THIS YEAR ITSELF AND THAT THE ASSESSMENT BE DIRECTED TO BE MODIFIED ACCORDINGLY. 2. THE FACTS IN BRIEF THE ASSESSEE IS A PRIVATE LIM ITED COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL UNITS / FLATS AND FILED ITS RETURN OF INCOME AT NIL PERTAINS TO YEAR UNDER CONSIDERATION. SUBSEQUENTLY THE CASE WAS TAKEN UP FOR SCRUTINY ASSESSMENT AND ASSESSMENT WAS FINALIZED U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT). THE ASSESSING OFFICER (AO) WHILE FINALIZING THE ASSESSMENT MADE A DDITION OF RS.75,06,811/- LEVIED AS UNSECURED LOAN. THE ASSESSEE FEELING AGGR IEVED BY THIS ORDER FILED APPEAL BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS DISMISSED THE APPEAL OF THE ASSESSEE. 3. NOW THE ASSESSEE CAME IN SECOND APPEAL BEFORE US . 4. LD. AR OF THE ASSESSEE SUBMITTED THAT THE ENTIRE AMOUNT OF RS.75,06,811/- RECEIVED DURING THE YEAR UNDER APPEA L FROM THE MEMBERS FOR THE PURPOSE OF MEETING COST OF RESIDENTIAL FLATS, W AS ADDED INTO THE INCOME OF THE ASSESSEE MERELY BECAUSE THE AMOUNT SO RECEIVED WAS WRONGLY SHOWN UNDER THE HEAD UNSECURED LOAN BY THE AUDITORS IN BALANCE-SHEET AS ON 31- 03-2006 AND THE MEMBERS DID NOT ACCEPT THE SAME AS UNSECURED LOAN. HE ITA NO.663/AHD/2010 A.Y. 2006-07 GARDENIA APARTMENT PVT. LTD. V. ITO WD-4(1) ABD PAG E 3 SUBMITTED THAT THE AMOUNT RECEIVED FROM THE MEMBERS CANNOT BE TAXED AS THE ENTIRE SALE VALUE OF THE FLATS. HE SUBMITTED THAT T HE CONSTRUCTION WAS INCOMPLETE AS ON 31-03-2006 THEREFORE, EXCESS RECEI VED FROM THE MEMBERS TILL 31-03-2006 CANNOT BE CONSIDERED AS SALE VALUE WORK CARRIED OUT TILL 31-03- 2006. HE SUBMITTED THAT ONLY SURPLUS AMOUNT CAN BE TAXED AS INCOME IN THE NEXT YEAR. HE PLACED RELIANCE ON THE JUDGMENT OF HO NBLE SUPREME COURT RENDERED IN THE CASE OF CALCUTTA CO. LTD. V. CIT (1959) 37 ITR 1 (SC). IN SUPPORT OF THE CONTENTION THAT THE EXPENDITURE INCU RRED ON THE DEVELOPMENT AND CONSTRUCTION IS ALLOWABLE SINCE SUCH EXPENDITUR E WAS INCIDENTAL TO THE CARRYING ON THE BUSINESS. HE SUBMITTED THAT BOTH TH E AUTHORITIES BELOW LOST SIGHT OF THE FACT THAT THOUGH THE CONTRIBUTION RECE IVED FROM THE MEMBERS FOR THE CONSTRUCTION OF RESIDENTIAL UNITS OF THE FLATS MAY NOT BE TREATED UNSECURED LOAN AND SAME REPRESENTS A LIABILITY TO THE MEMBERS BECAUSE IN CASE OF SALE SAME IS REFUNDABLE/ADJUSTABLE. THE SAME SHOULD HAVE BEEN SHOWN A SEPARATE ITEM IN BALANCE-SHEET BUT THE AUDITORS HAS SHOWN UN DER THE HEAD UNSECURED LOAN AS THE SAME DID NOT REPRESENT SHARE, CAPITAL, RESERVE OR SURPLUS OR CURRENT LIABILITY AND PROVISIONS. HE SUBMITTED THAT AS SAME WAS NOT REFUNDABLE /ADJUSTABLE IN SHORT TERM, THEREFORE, IT WAS NOT SH OWN AS CURRENT LIABILITY BUT UNDER THE HEAD UNSECURED LOAN AS THERE WAS NO OTH ER SUITABLE HEAD. HE SUBMITTED THAT EVEN OTHER WISE ALSO ALTERNATIVELY T HE AO HAS HELD THAT THE ASSESSEE HAS CARRIED ON THE ADVENTURE IN THE NATURE OF TRADE. HE HAS TAXED THE ENTIRE AMOUNT OF CONTRIBUTION RECEIVED FROM THE MEMBERS WITHOUT GIVING ANY DEDUCTION IN RESPECT OF THE COST OF LAND AND CO NSTRUCTION OF THE BUILDING THEREON AND DULY REFLECTED IN THE BALANCE-SHEET AS ON 31-03-2006 FILED WITH THE AO. HE SUBMITTED THAT THE WORK WAS STILL INCOMP LETE AS ON 31-03-2006 AND THEREFORE, THE EXCESS AMOUNT RECEIVED HAS TO BE TRE ATED AS AN AMOUNT RECEIVED IN ADVANCE AND NOT AS INCOME. THE CONSTRUC TION WAS COMPLETED IN THE AY 2006-07 AND THE ACTUAL COST WAS RS3,03,63,76 1/- AS AGAINST THE TOTAL CONTRIBUTION OF RS.3,04,10,113/- RECEIVED FROM THE MEMBERS TILL 31-03-2007 AND THUS EFFECTIVELY THERE WAS A SURPLUS OF RS.46,3 52/- ONLY WHICH CAN BE TAXED EVEN IF THE FACTS STATED ARE NOT ACCEPTABLE. HE SUBMITTED THAT THE ITA NO.663/AHD/2010 A.Y. 2006-07 GARDENIA APARTMENT PVT. LTD. V. ITO WD-4(1) ABD PAG E 4 OBSERVATION OF THE AO IN PARA-6 OF HIS ORDER IS THA T THE PROMOTERS OF THE COMPANY HAVE CARRIED ON THE BUSINESS OF CONSTRUCTIO N OF THE COMPANY UNDER THE VEIL OF THE SOCIETY AND POCKETED THE PROFITS DE FENDING THE REVENUE. THOUGH IT IS PROJECTED AS A SOCIETY AND RECEIPT ARE UNSECU RED LOAN, IT IS A ADVENTURE IN THE ACTUAL OF TRADE. ALL THE INGREDIENTS REQUIRED F OR ADVENTURE IN THE NATURE OF LIABILITY EXIST AND THE RECEIPTS ARE IN THE NATURE OF HOLDING RECEIPTS. HE SUBMITTED THAT LD. CIT(A) HAS DISMISSED THE APPEAL ON THE GROUND THAT THE ASSESSEE ITSELF HAS ACCEPTED THE AMOUNT OF RS.75,06 ,811/- RECEIVED DURING THE YEAR UNDER CONSIDERATION HAS BEEN SHOWN WRONGLY UNDER THE HEAD UNSECURED LOAN BY THE AUDITORS. HOWEVER, NEITHER DURING THE ASSESSMENT PROCEEDINGS NOR DURING THE APPELLATE PROCEEDINGS CE RTIFICATE FROM THE AUDITORS WAS FILED TO THE EFFECT THAT THEY HAD MADE WRONG EN TRY FOR SUCH AMOUNT. HE SUBMITTED THAT BOTH THE AUTHORITIES BELOW HAVE FAIL ED TO APPRECIATE THE FACT THAT EVEN IF IT IS ACCEPTED THAT RS.75,06,811/- IS A TRA DING RECEIPT AND AGAINST SUCH RECEIPT THE ASSESSEE HAS INCURRED EXPENDITURE DULY REFLECTED IN THE BOOKS OF ACCOUNT AND SUCH EXPENDITURE IS REQUIRED TO BE DEDU CTED BUT BOTH THE AUTHORITIES BELOW HAVE NOT ALLOWED SUCH DEDUCTION. 5. ON THE CONTRARY, LD. DR STRONGLY ARGUED THAT THE AUTHORITIES BELOW HAVE RIGHTLY TREATED THE TRADING RECEIPTS SHOWN AS UNSEC URED LOAN AS THE ASSESSEE COULD NOT SUBSTANTIATE THE CLAIM OF UNSECURED LOAN FROM THE PERSONS WHO HAD GIVEN SUCH AMOUNT TO THE ASSESSEE-COMPANY. HE RELIE D ON THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD AND THE JUDGMENT CITED BY LD. A R. WE FIND THAT ASSESSING OFFICER HAS MADE ADDITION OF RS.75,06,811/- ON THE GROUND THAT ANY UNSECURED LOAN APPEARING AS A LIABILITY IN THE BALANCE-SHEET IS PAYABLE TO THE LENDER. BUT IN THIS CASE, THE LIABILITY / UNSECURED LOAN WAS NO T PAYABLE BACK TO THE LENDER THE ALLEGED LENDERS HAD DENIED ADVANCING OF ANY LOA N. ANY NON-REFUNDABLE RECEIPT IS A TRADING RECEIPT AND TAXABLE FULLY IN T HE HANDS OF THE RECIPIENT. ITA NO.663/AHD/2010 A.Y. 2006-07 GARDENIA APARTMENT PVT. LTD. V. ITO WD-4(1) ABD PAG E 5 THEREFORE, THE ENTIRE AMOUNT OF RS.75,06,811/- APPE ARING AS UNSECURED LOAN, WHICH IS NON-REFUNDABLE IS TAXABLE IN THE HANDS OF THE COMPANY. HOWEVER, LD. CIT(A) CONFIRMED THE ACTION OF THE AO ON THE GROUND THAT THE ASSESSEE HAD NOT DRAWN PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PERIOD NEITHER IT GOT ITS ACCOUNT AUDITED UNDER THE PROVISIONS OF SECTION 44A B OF THE ACT. THEREFORE, UNDER THE CIRCUMSTANCES IT IS DIFFICULT TO VERIFY T HE CORRECTNESS OF THE ACCOUNTS MAINTAINED BY IT FOR THE RELEVANT PERIOD. MOREOVER, THE ASSESSEE, ITSELF, HAD ACCEPTED THAT THE AMOUNT OF RS.75,06,811/- RECEIVED DURING THE RELEVANT PERIOD HAS BEEN SHOWN WRONGLY UNDER THE HEAD UNSEC URED LOAN BY THE AUDITORS. HOWEVER, NEITHER DURING THE ASSESSMENT PR OCEEDINGS NOR DURING THE APPELLATE PROCEEDINGS CERTIFICATE FROM THE AUDITORS WAS FILED TO THE EFFECT THAT THEY HAD MADE A WRONG ENTRY FOR SUCH AMOUNT. WE HAV E GIVEN OUR THOUGHTFUL CONSIDERATION TO THE FACT AND CIRCUMSTANCES AND THE MATERIAL AVAILABLE ON RECORD IT IS UNDISPUTED THAT THE AO HAS TREATED THE UNSECURED LOAN AS A NON- REFUNDABLE LIABILITY AND ALSO TREATED THE SAME AS T RADING RECEIPT. SINCE THE AO HAS TREATED THE SAME AS TRADING RECEIPT ON SUCH REC EIPT, THE DEDUCTION OF COST AND OTHER EXPENDITURE INCURRED BY THE ASSESSEE IS R EQUIRED TO BE GIVEN RATIO OF THE JUDGMENT RELIED UPON BY THE LD. AR RENDERED IN THE CASE OF CALCUTTA CO. LTD. (SUPRA) IS APPLICABLE ON THE FACTS OF THE PRESENT CASE. AFTER CONSIDERING ALL ASPECTS OF THE MATTER THIS ISSUE IS RESTORED BACK T O THE FILE OF AO TO DECIDE AFRESH AFTER VERIFYING THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED OUT OF THE TRADING RECEIPT AND MAKE A DE NOVO ASSESSMENT AFTER GIVING RERASONABLE OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE. THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PU RPOSES. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STA TISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THE DATE MENTIONE D HEREINABOVE AT CAPTION PAGE. (A.K.GARODIA) (KUL BHARAT) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, ITA NO.663/AHD/2010 A.Y. 2006-07 GARDENIA APARTMENT PVT. LTD. V. ITO WD-4(1) ABD PAG E 6 *DKP !- 12/10/2012 &'( ) *+ *+ *+ *+ ,,- ,,- ,,- ,,- .- .- .- .- / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. ( ,1 * * 2 / CONCERNED CIT 4. * * 2- / CIT (A) 5. -56 ,,,1, * ,1 , &'( / DR, ITAT, AHMEDABAD 6. 69: ;< / GUARD FILE. BY ORDER/ *+ , /TRUE COPY/ =/& > * ,1 , &'( ) STRENGTHEN PREPARATION & DELIVERY O F ORDERS IN THE ITAT 1) DATE OF TAKING DICTATION 09/10 2) DIRECT DICTATION BY MEMBER STRAIGHT ON COMPUTER/LAPTOP/DRAGON DICTATE NO 3) DATE OF TYPING & DRAFT ORDER PLACE BEFORE MEMBER 09/10 4) DATE OF CORRECTION 10/10 5) DATE OF FURTHER CORRECTION 6) DATE OF INITIAL SIGN BY MEMBERS 10/10 7) ORDER UPLOADED ON 12/10 8) ORIGINAL DICTATION PAD-PART HAS BEEN ENCLOSED IN THE FILE YES 9) FINAL ORDER AND 2 ND COPY SEND TO BENCH CLERK ON 12/10