ACIT, Jaipur V. ADITYA PROPCON PVT. LTD, Jaipur

ITA 761/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2126 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 16-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R A VERMA
• Assessee Lawyers: SANDEEP JHANWAR CA DHK
• Keywords: Capital asset; Additional evidence

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 761/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12. THE ASSTT. COMMISSIONER OF INCOME - TAX, CIRCLE-6, JAIPUR. CUKE VS. M/S ADITYA PROPCON PVT. LTD.,A - 2, PUSHP ENCLAVE, PRATAP NAGAR, SECTOR-5, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAACD6226A VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI SANDEEP JHANWAR (CA) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 06.04.2017. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 11/04/2017. VKNS'K@ ORDER PER SHRI KUL BHARAT, JM. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. CIT (A)-5, JAIPUR DATED 20.06.2016 PERTAINING TO ASSESSMENT YE AR 2011-12. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. IT(A) WAS JUSTIFIED IN DELETING THE ADD ITION OF RS. 30,36,540/- MADE BY AO ON ACCOUNT OF EXCESS STOCK C LAIMED IN RESPECT OF SALES DURING THE YEAR. 2. WHETHER ON THE FACTS AND IN CIRCUMSTANCE OF T HE CASE AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITI ON OF RS. 3,24,92,621/- MADE BY AO ON ACCOUNT OF INCLUSION OF INTEREST COST INCURRED FOR PROJECT-2 IN THE VALUE OF INVENTORY OF PROJECT-2. 3. THE APPELLANT CRAVES ITS RIGHTS TO ADD, AMEND O R ALTER ANY OF THE GROUNDS ON OR BEFORE THE HEARING. 2 ITA NO. 761/JP/2016 M/S ADITYA PROPCON PVT. LTD, JAIPUR. 2. BRIEFLY STATED THE FACTS ARE THAT THE CASE OF TH E ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND ASSESSMENT UNDER SECTION 14 3(3) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VID E ORDER DATED 20.02.2014. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER MADE ADDITION BY ENHANCING THE VALUE OF INVENTORY OF RS. 3,24,92,621/- AND ON ACCOUNT OF INTEREST ON RICCO LOAN AND UNSECURED LOAN, EXCESS COST OF STOCK AMOUNTING TO R S. 30,36,540/-. AGGRIEVED BY THIS ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT (A) WHO AFTER CONSIDERING THE SUBMISSIONS, DELETED BOTH THE ADDITION. AGGRIEVED BY THIS, THE REVENUE IS IN PRESENT APPEAL . 3. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT BOTH THE ISSUES ARE SQUARELY COVERED IN FAVOUR OF THE ASSESS EE BY THE DECISIONS OF THIS HONBLE TRIBUNAL, PERTAINING TO THE ASSESSMENT YEAR 2009-10 AND 2010-11. LD. DEPARTMENTAL REPRESENTATIVES CONCEDED THIS FACT. H OWEVER, HE SUPPORTED THE ASSESSMENT ORDER. 3.1 WE HAVE HEARD THE RESPECTIVE REPRESENTATIVES PE RUSED THE MATERIAL AVAILABLE ON RECORD. 4. GROUND NO. 1, IN THE REVENUES APPEAL IS AGAINST DELETION OF ADDITION OF RS. 30,36,540/- MADE BY THE ASSESSING OFFICER. LD. CIT( A) DELETED THE ADDITION BY FOLLOWING DECISION OF THE TRIBUNAL IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2009-10. WE FIND THAT THE TRIBUNAL IN ITA NO. 762/ JP/2012 DECIDED THE ISSUE OF EXCESS STOCK IN PARA 7 AS UNDER:- WE HAVE HEARD THE RIVAL PARTIES. ON PERUSAL OF MA TERIAL ON RECORD AND ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSEE HAS ALLOCATED THE ENTIRE COST ON EACH AND EVERY UNIT. THE COT OF CONSTRUCTI ON IS PRO-RATA IN THE RATIO OF 3 ITA NO. 761/JP/2016 M/S ADITYA PROPCON PVT. LTD, JAIPUR. AREA OF EACH UNIT BUT THE COST OF LAND IS ALLOCATED ON WEIGHTED AVERAGE SELLING RATE OF EACH UNIT AS THERE ARE LARGE VARIATION IN T HE SELLING RATES OF THE UNITS DEPENDING ON THEIR RESPECTIVE LOCATION. MAJOR DIFF ERENCE IS BECAUSE OF THE FLOOR. GOVERNMENT ALSO RECOGNIZES IT FOR THE PURPOS E OF STAMP DUTY VALUATION AND TAKE DIFFERENT VALUE OF LAND FOR REGISTRATION O F PROPERTY AT DIFFERENT FLOORS. THE MANNER IN WHICH AO HAS ALLOCATED THE COST IS GI VING DISTORTED RESULT OF PROFIT/LOSS ON EACH UNIT AS AGAINST WHICH THE FORMU LA DRAWN BY THE ASSESSEE BALANCES THE SAME. THERE IS NO DISPUTE A TO THE FA CT THAT THE SAME BASIS IS ADOPTED IN THE BOOKS OF ACCOUNTS. IN OUR CONSIDERE D OPINION THE METHOD ADOPTED BY THE ASSESSEE IS MORE LOGICAL AND DOES NO T LEAVE ANY POSSIBILITY OF LEAKAGES IN REVENUE ALSO. IN THESE FACTS AND CIRCU MSTANCES WE FIND NO MERIT IN THE FIRST GROUND OF DEPARTMENTAL APPEAL. REGARD ING THE SECOND GROUND, WE FIND THAT THE WORKING SHOWN BY THE ASSESSEE WAS THE BASIS OF FINANCIAL STATEMENTS AND PREPARATION OF BOOKS OF ACCOUNTS. T HERE IS NO FINDING OF THE ASSESSING OFFICER THAT ANY OF THE INFORMATION REGAR DING FINANCIAL STATEMENT OR BOOKS OF ACCOUNT WAS NO PROVIDED BY THE ASSESSEE. IN SUCH CIRCUMSTANCE, IT IS WRONG TO CONSIDER THE CALCULATION AS ADDITIONAL EVIDENCES. THE LD. CIT(A) HAS, TO HIS SATISFACTION, VERIFIED THE CALCULATIONS WHICH HE FOUNDS HAS CORRECT. WE FIND NO MERIT IN THE ARGUMENTS OF LD. DR THAT VE RIFICATION OF COMPUTATION OF ALLOCATION OF COST, WHICH HAS NOT BEEN DONE BY T HE AO IS NOT WITHIN THE JURISDICTION OF THE LD. CIT(A). WE ACCORDINGLY DIS MISSED GROUND NO. 2 OF THE DEPARTMENTAL APPEAL ALSO. 4.1 IT IS STATED THAT THE LD. COUNSEL FOR THE ASSES SEE THAT THERE IS NO CHANGED INTO THE FACTS AND CIRCUMSTANCES. THE LD. DEPARTMENTAL REPRESENTATIVES AS NOT REFUTED THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE . THEREFORE, FOLLOWING THE DECISION IN ITA NO. 762/JP/2012 (SUPRA), WE DO NOT SEE ANY REASON TO INTERFERE INTO THE ORDER OF THE LD. CIT(A), SAME IS HEREBY AFFIRME D. THEREFORE, GROUND NO. 1 OF REVENUES APPEAL IS DISMISSED. 5. GROUND NO. 2 IS AGAINST DELETION OF ADDITION OF RS. 3,24,92,621/- LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSING OFFICER MADE ADDITION ON ACCOUNT OF ON THE BASIS THAT INTEREST COST OF PROJECT 2 CANNOT BE SET OFF AGAINST INCOME OF PROJECT 1, SINCE THE ASSESSEE MAINTAINE SEPARATE INVENTORIES F OR PROJECT 1 AND PROJECT 2. HOWEVER, LD. CIT(A) HELD THAT THE ASSESEE GAVE CORR ECT TREATMENT IN DEBITING THE INTEREST EXPENSES IN PROFIT AND LOSS ACCOUNT. THE SAME IS IN ACCORDANCE WITH THE 4 ITA NO. 761/JP/2016 M/S ADITYA PROPCON PVT. LTD, JAIPUR. PROVISIONS OF AS 2 AND AS 16 ALSO AS PER PROVISION OF SEC 36(1)(III), INTEREST PAID IN RESPECT OF CAPITAL BORROWED IS ALLOWED AS DEDUCTION IN THE YEAR IN WHICH IT WAS INCURRED. THIS TREATMENT IS ACCEPTED BY THE BY THE AUDITOR OF THE COMPANY AND ALSO COVERED BY THE DECISION OF THE TRIBUNAL IN ITA NO. 762/JP/2012 AND ALSO ITA NO. 728/JP/2016. WE FIND THAT THE TRIBUNAL IN ITA NO. 762/JP/2012 HAS DECIDED THE ISSUE IN PARA 18 OF THIS ORDER BY OBSERVING AS UNDE R:- WE HAVE HEARD THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD AND ALSO THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED AND THE LD. AUDITOR HAS NOT GIVEN ANY ADVRSE COMMENT FOR NOT FOLLOWING THE ACCOUNTING STANDARDS WHICH ARE MANDATORY FOR A COMPANY U/S 211 OF THE COMPANIES ACT, 1956. WE A LSO FIND THAT THERE IS NO DISPUTE THAT THE SAID LAND IS PART OF INVENTORY FOR THE ASSESSEE AND IS NOT A CAPITAL ASSET. THE ASSESSEE HAS PRODUCED EVIDENCES OF NO INCREASE IN THE LAND PRICE AND AO HAS NOT BROUGHT ANYTHING ON RECOR D TO SUPPORT THAT THE ASSESSEE WOULD BE ABLE TO REALIZE THE INTEREST COS T INCURRED OVER AND ABOVE THE COST OF PURCHASE OF LAND. IN SUCH CIRCUMSTANCE S, AS PER BASIC ACCOUNTING PRINCIPLES OF VALUATION OF INVENTORY THAT THE INVEN TORY IS TO BE VALUED AT COST OR NET REALIZABLE VALUE WHICH-EVER IS LOWER. THE U NCONTROVERTED EVIDENCES HOW THAT THERE IS NO BUYER OF THE SIM9ILAR LAND IN SAME VICINITY AT THE PRICE WHICH IS LESSER THAN THE PRICE PAID BY THE ASSESSEE AND THEREFORE, WE ARE CONVINCED WITH THE CIT(A) AND A/R OF THE ASSESSEE T HAT THE INVENTORY OF LAND CANNOT BE VALUED AT A PRICE HIGHER THAN IT IS BOUGH T. LD. A/R HAS STATED THAT THE ASSESSEE HAS NOT TAKEN UP THE PROJECT ACTIVITY EVEN TILL 31/03/2013. THE DELAY IN PROJECT IS FOR ECONOMIC REASONS. IN SUCH CIRCUMSTANCES, THE AS-16 DOES NOT ALLOW CAPITALIZATION OF INTEREST COST ALON G WITH THE COST OF LAND. IT ALLOWS CAPITALIZATION OF INTEREST COST ONLY DURING NORMAL PERIOD OF CONSTRUCTION AND NOR FOR INORDINATE DELAY IN THE CONSTRUCTION AC TIVITY DUE TO ADVERSE MARKET FORCES. THERE IS SPECIFIC REQUIREMENT OF AS-16, NO T TO CAPITALIZATION OF INTEREST COST ALONG WITH THE COST OF LAND IF IT IS HELD WITH OUT ANY ASSOCIATED 5 ITA NO. 761/JP/2016 M/S ADITYA PROPCON PVT. LTD, JAIPUR. DEVELOPMENT ACTIVITY. ACCORDINGLY, THE ACCOUNTING TREATMENT OF THE INTEREST COST IS PERFECTLY IN LINE WITH THE ACCOUNTING STAND ARDS. WE FURTHER FIND THAT DESPITE ANY ACCOUNTING TREATMENT, THE INTEREST ON C APITAL BORROWED FOR THE PURPOSE OF BUSINESS IS ALLOWABLE U/S 36(1)(III). A PROVISO HAS BEEN INSERTED W.E.F. 1.4.2004 WHICH READS AS UNDER:- PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION(WHETHER CAPITALIZED IN THE BOOKS OF A CCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAP ITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. THE PROVISO SPECIFICALLY REFERRED TO THE INTEREST P AID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF ANY ASSET FOR EXTENSION OF EXISTING BUSINESS. THE PRESENT CASE IS OF ACQUISITION OF LAND FOR ITS DEVE LOPMENT IN COURSE OF REAL ESTATE ACTIVITY OF THE ASESSEE. ASSESSEE IS ABOUT TO COMPLETE ONE PROJECT AND TO CONTINUE THE ACTIVITIES HAS PURCHASES ANOTHER LA ND TO DEVELOP ANOTHER PROJECT. THE ARGUMENT OF THE LD. DR THAT THE PROVI SO WOULD APPLY TO THE ASSESSEES CASE CANNOT BE ACCEPTED. WE ARE OF THE CONSIDERED OPINION THAT THE PURCHASE OF INVENTORY IS CONTINUATION OF THE SA ME BUSINESS ACTIVITY IN ROUTINE COURSE AND CANNOT BE TERMED AS EXTENSION OF THE BUSINESS ACTIVITY. THE PROVISO HAS BEEN INSERTED TO DISENTITLE CLAIM O F INTEREST ON FUNDS BORROWED FOR ACQUISITION OF CAPITAL ASSETS FOR THE PERIOD UPTO THE ASSET IS PUT TO USE. THE TERM PUT TO USE HERE APPLIES TO CAPI TAL ASSET ONLY BECAUSE A CAPITAL ASSETS IS HELD TO FACILITATE THE BUSINESS A CTIVITY AND SOMETIMES IT NEEDS TO BE PREPARED AFTER ITS ACQUISITION FOR BEING USED TO FACILITATE THE BUSINESS ACTIVITY. AS AGAINST THIS, PURCHASE AND HOLDING OF INVENTORY ITEM ITSELF IS A BUSINESS ACTIVITY. IN ABSENCE OF THIS PROVISO, SEC TION 36(1(III) EARLIER ENTITLED ASSESSEE TO CLAIM INTEREST IN RESPECT OF CAPITAL AS SETS, EVEN FOR THE PERIOD DURING WHICH THEY WERE UNDER CONSTRUCTION AS HELD I N VARIOUS JUDGMENTS POINTED OUT BY THE LD. AR OF THE ASSESSEE. THE INT EREST WAS FOUND ALLOWABLE DESPITE ITS CAPITALISATION IN THE BOOKS OF ACCOUNTS IN THE JUDGMENTS. WE ARE THEREFORE, OF THE OPINION THAT THE INTEREST ON FUND S BORROWED TO PURCHASE LAND WHICH IS PART OF INVENTORY OF THE ASSESSEE COMPANY IS AN ALLOWABLE DEDUCTION 6 ITA NO. 761/JP/2016 M/S ADITYA PROPCON PVT. LTD, JAIPUR. U/S 36(1)(III). WE ACCORDINGLY REJECT THE GROUND O F THE DEPARTMENTAL APPEAL ALSO. 5.2 IT IS CONTENDED BY THE LD. COUNSEL FOR THE ASSE SSEE, THAT THE FACTS ARE IDENTICAL AS WERE IN ITA NO. 762/JP/2012. THE REVENUE HAS NO REBUTTED THESE SUBMISSIONS BY PLACING ANY CONTRARY MATERIAL. THEREFORE, WE DO NO T SEE ANY REASON TO INTERFERE INTO THE ORDER OF THE LD. CIT(A), SAME IS HEREBY AFFIRME D. THEREFORE, GROUND NO. 2 OF THE REVENUES APPEAL IS DISMISSED. 6. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON TUESDAY, THE 11TH DAY OF APRIL 2017. SD/- SD/- FOE FLAG ;KNO ( DQY HKKJR ) (VIKRAM SINGH YADAV) ( KUL BHARAT ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 11/04/2017. POOJA/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT-THE ASSTT. COMMISSIONER OF INCOME- TAX, CIRCLE-6, JAIPUR. 2. THE RESPONDENT-M/S ADITYA PROPCON PVT. LTD., A-2 , PUSHP ENCLAVE, JAIPUR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 761/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 7 ITA NO. 761/JP/2016 M/S ADITYA PROPCON PVT. LTD, JAIPUR.