M/s Vasu Builders., Eluru V. The ITO, Ward-1, Eluru

ITA 72/VIZ/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7288 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 11-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 24-01-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Capital asset; Cost of acquisition; Revenue expenditure; Capital expenditure
• Section: 133A; 68

Judgement Text

ITA NO.72 OF 2008 VASU BUILDERS ELURU PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.72/VIZAG/2008 ASSESSMENT YEAR: 2004 - 05 VASU BUILDERS, ELURU VS. ITO WARD-I ELURU (APPELLANT) PAN NO:AADFV 8381 N (RESPONDENT) APPELLANT BY: SHRI G.V.N. HARI, CA RESPONDENT BY: SHRI D.S.SUNDER SINGH, SR.DR ORDER PER SHRI B. R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 06.11.2007 PASSED BY LEARNED CIT(A), RAJAHMUNDRY AN D IT RELATES TO THE ASSESSMENT YEAR 2004-05. 2. THE GROUNDS RAISED BY THE ASSESSEE GIVE RISE TO THE FOLLOWING THREE ISSUES: A) ADDITION OF RS.3,40,000/- RELATING TO THE COMPEN SATION PAID FOR BREACH OF AGREEMENT. B) ADDITION OF RS.1,90,605/- TOWARDS THE DIFFERENCE IN PURCHASE CONSIDERATION. C) ADDITION OF CASH CREDITS AMOUNTING TO RS.1,95,48 0/-. 3. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSEE IS IN THE BUSINESS OF DEVELOPING RESIDENTIAL APARTMENTS. THE ASSESSEE FIRM FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON ON 23-12-2004 ADMITTING A LOSS OF RS.2,53,320/-. A SURVEY OPERAT ION HAD BEEN CONDUCTED UNDER SECTION 133A OF THE ACT IN THE BUSINESS PREMI SES OF THE ASSESSEE ON 15.6.2004 AND HENCE THE ABOVE SAID RETURN OF INCOME OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY. WHILE FINALIZING THE ASSESS MENT, THE ASSESSING OFFICER ADDED THE AMOUNTS STATED IN THE PRECEDING PARAGRAPH . THE ASSESSEE ITA NO.72 OF 2008 VASU BUILDERS ELURU PAGE 2 OF 6 CHALLENGED THE SAID ADDITIONS BEFORE THE LEARNED CI T (A), BUT COULD NOT FIND FAVOUR FROM HIM. HENCE THE ASSESSEE IS IN APPEAL BE FORE US. 4. THE FIRST ISSUE RELATES TO THE ADDITION OF RS.3, 40,000/-. THE ASSESSEE ORIGINALLY ENTERED INTO AN AGREEMENT ON 9-3-2002 WI TH AN OWNER OF A SITE NAMED SMT. PATNALA SOMALAMMA FOR DEVELOPMENT OF THE SAID SITE INTO APARTMENTS. ON ACCOUNT OF DIFFERENCE BETWEEN THE PA RTIES, ANOTHER FRESH AGREEMENT WAS ENTERED ON 25-5-2003 WITH MODIFIED TE RMS AND CONDITIONS. SUBSEQUENT TO THE ENTERING OF THE ABOVE SAID FRESH AGREEMENT, THE ASSESSEE CONSIDERED THE PROJECT TO BE UNVIABLE AND ACCORDINGLY DECIDED TO ABANDON THE SAME. IN THIS PROCESS THE ASSESSEE WAS REQUIRED TO PAY A COMPENSATION AMOUNT OF RS.3,40,000/- TO THE OWNER O F THE SITE, WHICH WAS CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. 4.1 THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS BEEN FOLLOWING THE METHOD OF ACCOUNTING OF CLAIMING THE COST OF SI TE AND MATERIAL AS EXPENDITURE ONLY IN THE YEAR IN WHICH MAJORITY OF T HE FLATS ARE SOLD. TILL SUCH TIME, THE ASSESSEE HAS BEEN SHOWING THE COST OF SIT E AS ITS FIXED ASSET IN THE BALANCE SHEET AND NOT AS STOCK IN TRADE OR WORK IN PROGRESS. ACCORDINGLY THE ASSESSING OFFICER TREATED THE COMPENSATION PAYMENT OF RS.3,40,000/- AS A PAYMENT RELATING TO CAPITAL ASSET, SINCE THE PROJEC T ITSELF HAS NOT BEEN STARTED. HENCE BY FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF SWADESHI COTTON MILLS CO. LTD., VS. CIT (63 ITR 65), THE ASSESSING OFFICER TREATED THE IMPUGNED PAYMENT AS A PAYMENT T OWARDS CAPITAL EXPENDITURE AND ACCORDINGLY DISALLOWED THE SAME. TH E SAID ADDITION WAS CONFIRMED BY THE LEARNED CIT (A). 4.2 ACCORDING TO THE ASSESSEE THE AGREEMENT ENTERED ON 9.3.2002 AND 25.5.2003 FOR DEVELOPMENT OF SITE BELONGING TO SMT. P. SOMALAMMA IS ONLY AN EXTENSION OF THE EXISTING BUSINESS OF THE ASSESS EE. SINCE THE ASSESSEE FELT THAT THE PROJECT IS NOT VIABLE, IT CANCELLED T HE SAID AGREEMENT. SINCE THE IMPUGNED PAYMENT WAS MADE FOR BUSINESS CONSIDERATIO NS, THE SAID PAYMENT WOULD FALL IN THE CATEGORY OF REVENUE EXPEN DITURE AND IT CANNOT BE TREATED AS CAPITAL EXPENDITURE SIMPLY BECAUSE THE A SSESSEE HAS BEEN ITA NO.72 OF 2008 VASU BUILDERS ELURU PAGE 3 OF 6 SHOWING THE COST OF SITE AS FIXED ASSET TILL THE CO MPLETION OF THE PROJECT. IN THIS REGARD, THE ASSESSEE RELIED UPON THE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF EXCEL INDUSTRIES LTD., VS. D.C.I.T RE PORTED IN (2004) 86 TTJ (MUMBAI) 840. ON THE OTHER HAND, THE LEARNED DEPART MENTAL REPRESENTATIVE SUBMITTED THAT THE IMPUGNED PAYMENT CAN ONLY BE TAK EN AS CAPITAL EXPENDITURE SINCE THE SAME HAS BEEN PAID TOWARDS AB ANDONMENT OF A PROJECT AND THE ASSESSEE IS NOT SHOWING THE COST OF SITE AS THE BUSINESS ASSET TILL THE COMPLETION OF THE PROJECT. 4.3 WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS ISS UE. THERE IS NO DISPUTE BETWEEN THE PARTIES THAT THE ASSESSEE IS IN THE BUSINESS OF DEVELOPMENT OF RESIDENTIAL FLATS. HENCE THE AGREEME NT ENTERED BY THE ASSESSEE ON 9-3-2002 AND 25-5-2003 FOR DEVELOPMENT OF A SITE BELONGING TO SMT. P. SOMALAMMA CANNOT BE TAKEN AS ALTOGETHER A N EW PROJECT NOT GERMANE TO THE EXISTING BUSINESS OF THE ASSESSEE. AS SUBMITTED BY LEARNED AUTHORISED REPRESENTATIVE IT IS ONLY AN EXTENSION O F THE EXISTING BUSINESS OF THE ASSESSEE. SINCE THE ASSESSEE CONSIDERED THE IMP UGNED PROJECT TO BE UNVIABLE, IT THOUGHT IT WISE TO CANCEL THE AGREEMEN T AND IN THAT PROCESS IT HAD TO PAY COMPENSATION OF RS.3,40,000/- TO THE OWN ER OF THE SITE. IN THE CASE OF EXCEL INDUSTRIES (SUPRA), IT HAS BEEN HELD T HAT THE LOSS INCURRED ON ABANDONMENT OF A PROJECT, WHICH IS ONLY EXTENSION O F THE EXISTING BUSINESS, IS A REVENUE LOSS. IN THAT CASE, THE ASSESSEE HAD P LACED RELIANCE ON THE FOLLOWING DECISIONS. A) EMPIRE JUTE CO .LTD., VS. CIT (1980) 124 ITR 1 ( .SC) B) ALEMBIC CHEMICALS WORKS VS. CIT (1989) 177 ITR 3 77 (S.C) SINCE WE HAVE ALREADY HELD THAT THE IMPUGNED PROJEC T IS ONLY EXTENSION OF THE EXISTING BUSINESS, THE COMPENSATION OF AMOUNT O F RS.3,40,000/- PAID BY THE ASSESSEE ON CANCELLATION OF THE AGREEMENT, IN O UR VIEW, WOULD CONSTITUTE A TRADING LOSS AND ACCORDINGLY ALLOWABLE AS REVENUE EXPENDITURE. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LEARNED C IT (A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE SAID ADD ITION. 5. NEXT ISSUE RELATES TO THE ADDITION OF RS.1,90,60 5/- TOWARDS THE ADDITIONAL PAYMENT ON PURCHASE OF A SITE. DURING TH E YEAR UNDER ITA NO.72 OF 2008 VASU BUILDERS ELURU PAGE 4 OF 6 CONSIDERATION THE ASSESSEE HAS PURCHASED A SITE AT TS NO.744 TO 749, 754 AND 755 LOCATED AT AGRAHARAM, ELURU, HAVING AN EXTE NT OF 308.19 SQ. YARDS FOR A CONSIDERATION OF RS.1,50,000/- PLUS REGISTRAT ION CHARGES. HOWEVER, IN THE CONVEYANCE DEED, THE MARKET VALUE OF THE PROPER TY WAS STATED AT RS.2,58,880/-. THE ASSESSING OFFICER ALSO NOTICED T HAT THE ASSESSEE HAD PURCHASED ANOTHER PROPERTY ADMEASURING 2194.976 SQ. YARDS AT TS NO.755 ON 5-12-2001 FOR A CONSIDERATION OF RS.8,78,000/-. DURING THE COURSE OF SURVEY, ONE OF THE PARTNERS NAMED SHRI T.S.P. KRISH NA MOHANA RAO ADMITTED THAT THE SAID SITE WAS PURCHASED @ RS.1000 /- PER SQ. YARD AND AGREED TO OFFER THE ADDITIONAL AMOUNT PAID AS INCOM E OF THE FIRM. ACCORDINGLY THE ASSESSEE ALSO FILED A REVISED RETUR N FOR THE ASSESSMENT YEAR 2002-03 ADMITTING THE ADDITIONAL INCOME SO OFFERED DURING THE COURSE OF SURVEY. SINCE THE PROPERTY PURCHASED IN THE YEAR U NDER CONSIDERATION WAS ALSO LOCATED IN THE SAME PLACE, THE ASSESSING OFFIC ER ADOPTED THE RATE OF RS.1000/- PER SQ. YARD FOR THE SAID PROPERTY. ACCOR DINGLY THE DIFFERENCE OF RS.1,58,190/- WAS ADDED. IT WAS ALSO NOTICED THAT TH E ASSESSEE HAD PAID A SUM OF RS.32,415/- TOWARDS STAMP DUTY AND REGISTRAT ION CHARGES AND THE SAME WAS NOT REFLECTED IN THE BOOKS OF ACCOUNT. ACC ORDINGLY THE SAID AMOUNT WAS ALSO ADDED BY THE ASSESSING OFFICER. THE LEARNED CIT (A) CONFIRMED THE SAID ADDITIONS. 5.1 THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THERE IS NO MATERIAL WITH THE ASSESSING OFFICER TO SUGGEST THAT THE ASSESSEE HAS PAID ANY ON MONEY IN CONNECTION WITH THE PURCHASE OF THE IMPUGNED PROPERTY. HOWEVER, THE LEARNED DEPARTMENTAL REPRESENTATIVE SU BMITTED THAT THE ASSESSEE HAS NOT ACCOUNTED FOR THE STAMP DUTY AND R EGISTRATION CHARGES OF RS.32,415/- IN ITS BOOKS OF ACCOUNT AND FURTHER THE SURROUNDING CIRCUMSTANCES SHOW THAT THE ASSESSEE WOULD HAVE PAI D ON MONEY ON THE PURCHASE OF THE IMPUGNED SITE. 5.2 WE HAVE HEARD THE RIVAL CONTENTIONS. THE ASSESS EE HAS ADMITTED PAYMENT OF ON MONEY ON THE PROPERTY PURCHASED ON 5- 12-2001 IN TS NO.755. THE IMPUGNED PROPERTY, WHICH WAS PURCHASED IN THE YEAR UNDER CONSIDERATION, IS ALSO LOCATED IN THE SAME AREA. T HE VALUE OF THE SAID ITA NO.72 OF 2008 VASU BUILDERS ELURU PAGE 5 OF 6 PROPERTY, AS PER THE GOVT. RECORD FOR STAMP DUTY PU RPOSES STOOD AT RS.840/- PER SQ. YARD AS AGAINST RS.487/- PER SQ. YARD DECLA RED BY THE ASSESSEE. THUS APPARENTLY THERE IS HUGE DIFFERENCE BETWEEN TH E GOVERNMENT VALUE AND THE APPARENT VALUE. NOW THE QUESTION THAT ARIS ES IS WHETHER THE ASSESSING OFFICER HAD ANY MATERIAL WHICH SUGGESTS P AYMENT OF ANY ON MONEY. THE ASSESSING OFFICER HAS NOTICED THAT THE PROPERTY PURCHASED ON 5-12-2001 ON WAS ALSO LOCATED IN THE SAME LOCALITY AS THAT OF THE IMPUGNED PROPERTY UNDER CONSIDERATION AND THE ASSESSEE ITSEL F HAD ADMITTED THAT THE SAME WAS PURCHASED @ RS.1000/- PER SQ. YARD. THE P ROPERTY UNDER CONSIDERATION HAS BEEN PURCHASED AFTER TWO YEARS. THERE IS HUGE DIFFERENCE BETWEEN THE APPARENT VALUE AND THE GOVERNMENT VALUE . ALL THESE POINTS AND SURROUNDING CIRCUMSTANCES SUGGEST THAT THAT ASS ESSEE COULD HAVE PAID ON MONEY ON THE PURCHASE OF IMPUGNED PROPERTY. HO WEVER, WE ARE OF THE VIEW THAT THE VALUE OF RS.840/- PER SQ. YARD, AS SH OWN IN THE GOVERNMENT RECORD, SHOULD BE TAKEN AS THE PURCHASE COST INSTEA D OF RS.1,000/- PER SQ. YARD WHICH WAS ADOPTED BY THE ASSESSEE SINCE THE GO VERNMENT RECORD IS THE ONLY OTHER MATERIAL AVAILABLE IN THIS REGARD. A CCORDINGLY WE DIRECT THE ASSESSING OFFICER TO CALCULATE THE DIFFERENCE IN TH E CONSIDERATION BY ADOPTING THE PURCHASE VALUE AT RS.840/- PER SQ. YAR D. THE ORDER OF LEARNED CIT(A) IS MODIFIED ACCORDINGLY. WITH REGARD TO THE STAMP DUTY OF RS.32,415/- IT HAS BEEN STATED THAT THE ASSESSEE HA S NOT ACCOUNTED FOR THE SAME. ACCORDINGLY, THE SAID ADDITION IS ALSO CONFIR MED. 6. THE NEXT ISSUE RELATES TO THE ADDITION OF UNEXPL AINED CASH CREDIT. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD INT RODUCED FRESH CREDITS AGGREGATING TO RS.3,55,480/- DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE FILED CONFIRMATION LETTERS FROM TWO PERSON S VIZ., SMT. V. KAMALA (RS.60,000/-) AND SHRI GANGA RATNAM (RS.50,000/-). ACCORDINGLY THE ASSESSING OFFICER ACCEPTED THE SAID TWO CASH CREDIT S. THE REMAINING CASH CREDITS ARE LISTED OUT BELOW: I) K. ANJANEYULU RS.20,000/- II) S. RANGA RS.25,000/- III) RAVI KRISHNA RAO RS.50,000/- IV) Y. PRATAP RS.10,000/- V) M. YESU RS.30,000/- ITA NO.72 OF 2008 VASU BUILDERS ELURU PAGE 6 OF 6 VI) MALLA REDDY RS.50,000/- VII) A. APPA RAO RS.60,480/- ----------------- TOTAL RS.2,45,480/- ======== OUT OF THE ABOVE SAID AGGREGATE AMOUNT, THE ASSESSE E HAD ALREADY OFFERED A SUM OF RS.50,000/-AS ITS INCOME IN THE RETURN OF INCOME FILED BY IT. ACCORDINGLY THE ASSESSING OFFICER ADDED THE REMAINI NG AMOUNT OF RS.1,95,480/- UNDER SECTION 68 OF THE ACT, AS THE A SSESSEE COULD NOT SUBSTANTIATE THE SAID CREDITS. LEARNED CIT (A) ALSO CONFIRMED THE SAID ADDITION. 6.1 BEFORE US ALSO, THE ASSESSEE COULD NOT FILE ANY MATERIAL TO ESTABLISH THE GENUINENESS OF THE IMPUGNED CREDITS. HENCE WE H AVE NO OTHER OPTION BUT TO CONFIRM THE ORDER OF THE LEARNED CIT (A) ON THIS ISSUE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 6 TH JANUARY, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE: 06-01-2011 COPY TO 1 M/S VASU BUILDERS, D.NO. 3A-1-95 SRI SAI KANYAKA COMPLEX, MAIN BAZAR, ELURU 534 001 2 THE ITO WARD-1, ELURU 3 4. THE CIT RAJAHMUNDRY THE CIT(A), RAJAHMUNDRY 5 THE DR, ITAT, VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM