M/s. Shri Ram Builders, Indore V. The ACIT, Indore

ITA 73/IND/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9578 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 03-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P K MITRA
• Assessee Lawyers: C P RAWKA
• Keywords: Depreciation; Bad and doubtful debts; TDS
• Section: 43B; 40(a)(ia); 28

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.71 TO 73/IND/2010 A.YS.2004-05 TO 2006-07 M/S SHRI RAM BUILDERS INDORE PAN AJLPJ 3049E APPELLANT VS ASSTT. COMMISSIONER OF INCOME TAX 1(2), INDORE RESPONDENT APPELLANT BY : SHRI C.P. RAWKA RESPONDENT BY : SHRI P.K. MITRA O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THESE THREE APPEALS APPEALS ARE FOR THE ASSESSMENT YEARS 2004- 05 TO 2006-07 AGAINST THE CONSOLIDATED ORDER OF THE LEARNED CIT(A) DATED 16.11.2009. IN ASSESSMENT YEAR 2004-05 THE F IRST GROUND RAISED IS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1 LAC MADE OUT OF DEVELOPMENT AND LAND EXPENSES WITHOUT CONSIDERING THE FACTS BEING E XPENSES TOWARDS 2 PENDING DEVELOPMENT. THE CRUX OF ARGUMENTS ON BEHAL F OF THE ASSESSEE IS THAT THE ASSESSEE IS A DEVELOPER, FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING, THEREFORE, NO DISALLOWANCE IS MADE ON A D HOC BASIS OUT OF THE TOTAL DEVELOPMENT EXPENSES DEBITED AT RS.95.43 LACS. THE LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO D ETAILS OF EXPENSES AVAILABLE AT PAGES 2 TO 14 OF THE PAPER BOOK WHICH WERE CLAIMED TO BE FULLY VERIFIABLE. ON THE OTHER HAND, THE LEARNED S ENIOR DEPARTMENTAL REPRESENTATIVE DEFENDED THE DISALLOWANCE ON THE PLE A THAT A MEAGER DISALLOWANCE HAS BEEN MADE OUT OF THE HUGE DEVELOPM ENT EXPENSES ESPECIALLY WHEN DEFECTS WERE POINTED OUT IN THE DET AILS SUBMITTED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. 2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. BRIEF FACTS ARE THAT THE ASSESSEE CLAIMED DEVELOPMENT EXPENSES AMOU NTING TO RS.95,43,824/- OUT OF WHICH THE ASSESSING OFFICER M ADE AD HOC DISALLOWANCE ON THE PLEA THAT NO PROPER BILLS OF PU RCHASE OF RAW MATERIAL SUCH AS SAND, SOIL, GITTI AND LABOUR PAYMENTS WERE MADE AVAILABLE BY THE ASSESSEE AND FURTHER THIS OBSERVATION WAS NOT REBUT TED BY THE ASSESSEE IN ITS WRITTEN SUBMISSIONS. WE HAVE PERUSED THE DE TAILS OF EXPENSES WHICH HAVE BEEN MADE PART OF THE PAPER BOOK. THE L EARNED ASSESSING OFFICER ALSO HAS MADE DISCUSSION IN PARA 2.3 (PAGE 2) OF THE ASSESSMENT ORDER AND THE LEARNED COMMISSIONER OF INCOME TAX (A PPEALS) IN PARA 3 3 ONWARDS OF THE IMPUGNED ORDER. THE RELEVANT CONCLU SION IS AVAILABLE IN PARA 1.4 OF THE IMPUGNED ORDER. HOWEVER, WE FIND T HAT THE NECESSARY DETAILS OF EXPENSES ARE AVAILABLE AT PAGES 2 TO 14 OF THE PAPER BOOK AND THE SAME ARE FULLY VERIFIABLE. EVEN DURING THE ASS ESSMENT PROCEEDINGS, THE ASSESSEE ATTENDED AND PRODUCED BOOKS OF ACCOUNT S, FILED WRITTEN SUBMISSIONS/REPLIES AND THE BOOKS WERE DULY VERIFIE D AS IS EVIDENT FROM PARA 1.2 OF THE ASSESSMENT ORDER. THE DISALLOWANCE OF 1% WAS MADE ON THE PLEA THAT SOME OF THE BILLS WERE EITHER SELF MADE OR WERE KACHA BILLS. ADMITTEDLY, FOR PAYMENT OF SAND, SOIL AND LA BOUR CHARGES SOMETIMES THE PAKKA BILLS NOT AVAILABLE. HOWEVER, THE AVAILABILITY OF BILLS IS NOT DISPUTED AND AN AD HOC DISALLOWANCE HAS BEEN MADE THAT TOO WHEN NECESSARY DETAILS WERE PRODUCED BEFORE THE ASS ESSING OFFICER, THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT WI THOUT PIN-POINTING ANY DEFECT, NO AD HOC DISALLOWANCE SHOULD HAVE BEEN MAD E, THEREFORE, THIS GROUND OF THE ASSESSEE IS ALLOWED. OUR VIEW WILL AL SO COVER GROUND NO.1 OF THE APPEAL FOR THE ASSESSMENT YEARS 2005-06 AND 2006-07, THEREFORE, THE FIRST GROUND IN THE RESPECTIVE APPEALS IS ALLOW ED. 3. THE NEXT GROUND PERTAINS TO CONFIRMING THE DISALLOW ANCE MADE FOR MAKING PROVISION OF PENDING LAND DEVELOPMENT AT RS. 28,50,000/- (ASSESSMENT YEAR 2004-05). THE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT THE ASSESSEE FIRM IS FOLLOWING MER CANTILE SYSTEM OF ACCOUNTING, THE PROVISION WAS DULY CERTIFIED BY THE ARCHITECT, THE 4 DEPARTMENT HAS NOT DOUBTED THE EXPENSES AND THE OBS ERVATION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT T HE EXPENSES WERE INCURRED IN SUBSEQUENT YEAR AND NOT ESTABLISHED, IS WITHOUT ANY REASON. ON THE OTHER HAND, THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE STRONGLY DEFENDED THE ADDITION. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. IF THE CLAIM OF THE ASSESSEE THAT MERCANTILE SYSTEM OF ACCOUNTING I S FOLLOWED IS ACCEPTED, EVEN THE ASSESSEE HAS NOT EXPLAINED AS TO UNDER WHAT PROVISIONS THESE EXPENSES WERE CLAIMED. UNDER THE M ERCANTILE SYSTEM OF ACCOUNTING EXPENSE CAN BE ALLOWED ONLY IF THE SA ME HAS BEEN INCURRED IRRESPECTIVE OF THE FACT THAT THE SAME HAS NOT BEEN PAID, MEANING THEREBY ACCRUAL OF LIABILITY IS SINE QUA NO N FOR CLAIMING SUCH EXPENSES AND ACTUAL PAYMENT OF THE SAME DURING THE YEAR IS OF NO IMPORTANCE. ON THE CONTRARY, THE EXPENSES WHICH HA VE ACTUALLY BEEN PAID BUT NOT INCURRED DURING THE YEAR CANNOT BE ALL OWED UNDER MERCANTILE SYSTEM OF ACCOUNTING. SUCH PAYMENT WILL GO UNDER T HE HEAD ADVANCE PAYMENT NOT DEDUCTIBLE WHILE COMPUTING BUSINESS IN COME UNDER SECTIONS 28 TO 43B OF THE ACT. ON THE CONTRARY, IF EXPENSES ARE ACTUALLY INCURRED BUT THE PAYMENT OF WHICH COULD NOT BE MADE , DURING THE YEAR, IS REQUIRED TO BE ALLOWED AS HAVING BEEN INCURRED. IN THE PRESENT APPEAL, THESE EXPENSES WERE NEITHER INCURRED NOR PAID DURIN G THE YEAR, 5 THEREFORE, THIS GROUND OF THE ASSESSEE IS HAVING NO MERIT. ON A QUERY FROM THE BENCH REGARDING INCURRING OF EXPENSES IT W AS EXPLAINED THAT THESE EXPENSES WERE INCURRED IN SUBSEQUENT YEARS, C ONSEQUENTLY, AT LEAST FOR THE PRESENT ASSESSMENT YEAR, THE DISALLOW ANCE SO MADE IS FULLY JUSTIFIED. HOWEVER, THERE IS NO PROVISION UNDER TH E INCOME TAX ACT FOR ALLOWING SUCH CLAIM OF PROVISION. WHEREVER THE STAT UTE HAS ENVISAGED SUCH ALLOWING OF PROVISION, A CLEAR SECTION HAS BEE N PROVIDED FOR THE SAME LIKE PROVISION FOR BAD AND DOUBTFUL DEBTS U/S 36(1)(IV), PROVISION FOR RETIREMENT BENEFIT ON THE BASIS OF ACTUARIAL LIABIL ITY, ETC. SUCH EXPENDITURE CAN BE CONSIDERED ON THE BASIS OF ACCRUAL OR PAYMEN T IN THE COMING YEARS WHEN IT IS INCURRED BY THE ASSESSEE. WE DIRE CT ACCORDINGLY. THEREFORE, THIS GROUND OF THE ASSESSEE IS HAVING NO MERIT, THEREFORE, DISMISSED. 5. GROUND NO. 3 (ASSESSMENT YEAR 2004-05) IS GENERA L IN NATURE AND REQUIRES NO DELIBERATION FROM OUR SIDE. 6. FOR THE ASSESSMENT YEAR 2005-06 GROUND NO. 2 PER TAINS TO CONFIRMING THE DISALLOWANCE OF RS. 40,000/- ON ACCO UNT OF BROKERAGE EXPENSES. THE LD. COUNSEL FOR THE ASSESSEE CONTENDE D THAT SINCE THE BROKERAGE WAS MADE WITHOUT DEDUCTION OF TDS AND THE PROVISION WAS INSERTED BY FINANCE ACT (NO. 2) OF 2004 IN JULY, 20 04 AND THE PAYMENT WAS MADE IN APRIL, 2004, THEREFORE, IN THE ABSENCE OF ANY TDS PROVISION, 6 NO DISALLOWANCE SHOULD HAVE BEEN MADE. ON THE OTHER HAND, THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE DEFENDED THE DISALLOWANCE. 6.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. BRIEF FACTS ARE THAT THE ASSESSEE CLAIMED TO HAVE PAID BROKERAGE O F RS.40,000/- TO ONE SANJAY GUPTA ON 15.4.2004 WITHOUT DEDUCTING THE TAX , THEREFORE, THE ASSESSING OFFICER DISALLOWED THE SAME U/S 40(A) OF THE ACT. THE STAND OF THE ASSESSEE IS THAT AT THE TIME OF PAYMENT, NO SUC H PROVISION WAS AVAILABLE ON THE STATUTE AS THE SAME WAS PRONOUNCED IN THE BUDGET SPEECH BEFORE THE PARLIAMENT ON 8 TH JULY, 2004. HOWEVER, WE FIND THAT THE RELEVANT PROVISION WAS BROUGHT ON THE STATUTE W .E.F. 1.4.2004, THEREFORE, THE PAYMENT MADE ON 15.4.2004 IS COVERED BY THE AMBIT OF SECTION 40(A)(IA) OF THE ACT. HOWEVER, WE ARE OF T HE VIEW THAT THE BENEFIT MAY BE GIVEN IN THE YEAR WHEN IT WAS ACTUALLY DEDUC TED AND PAID TO THE GOVERNMENT ACCOUNT AND IF NOT PAID THEN IN PRINCIPL E, WE ARE IN AGREEMENT WITH THE STAND OF THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS). THEREFORE, THE ASSESSING OFFICER IS TO VERIFY THE FACTS AND TO DECIDE AS PER THE PROVISIONS OF THE ACT. 7. THE NEXT GROUND PERTAINS TO CONFIRMATION OF DISA LLOWANCE ON ACCOUNT OF DEPRECIATION ON CAR AT RS.1,52,283/-. T HE CRUX OF ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT THE VEHICLE/CAR I S REGISTERED IN THE NAME OF THE ASSESSEE AND WAS USED BY THE PARTNERS F OR BUSINESS 7 PURPOSES, THEREFORE, IT HAS TO BE ALLOWED. KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES NARRATED BEFORE US, SINCE T HE CAR WAS IN THE NAME OF THE ASSESSEE AND WAS CLAIMED TO BE USED BY THE PARTNERS OF THE ASSESSEE FIRM FOR BUSINESS PURPOSES AND WITHOUT RUL ING OUT THE POSSIBILITY OF USE FOR PERSONAL PURPOSES, 1/10 TH OF DISALLOWANCE IS JUSTIFIED AND THE REMAINING DISALLOWANCE IS DELETED, THEREFOR E, THIS GROUND IS PARTLY ALLOWED. 8. GROUND NO. 4 IS GENERAL IN NATURE AND REQUIRES N O DELIBERATION FROM OUR SIDE. SIMILAR IS THE POSITION OF GROUND NO. 2 FOR THE ASSESSMENT YEAR 2006-07. FINALLY, THE APPEALS OF THE ASSESSEE ARE DISPOSED OF AS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT IN THE PRESENCE OF LEARNED REPRESENTATIVES OF BOTH THE SIDES AT THE CONCLUSION OF THE HEARING ON 3 RD MARCH, 2011. (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 3 RD MARCH, 2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE DN/- 8