ENKAY HOMES LTD`, NAVI MUMBAI V. ITO WD 10(3)()4), MUMBAI

ITA 7902/MUM/2010

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9171 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 03-09-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 16-11-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: DR P DANIEL
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI D. KARUNAKAR RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 7902/MUM/2010 ASSESSMENT YEAR: 2003-04 ENKAY HOMES LTD. A-206, VASHI PLAZA SECTOR 17, VASHI, NAVI MUMBAI- 400 703 PAN:-AAACC 2718 C VS. ITO WD- 10(3)(4) AAYAKAR BHAVAN MUMBAI (APPELLANT) (RESPON DENT) ASSESSEE BY : DR. P. DANIEL REVENUE BY : SHRI NE IL PHILIP DATE OF HEARING : 10 .03 .2015 DATE OF ORDER : 25. 03.2015 O R D E R PER AMIT SHUKLA, JM: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINS T ORDER DATED 16.08.2010 PASSED BY LD. CIT (APPEAL) -22, MUMBAI F OR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE A.Y. 2003-04, VIDE WHICH FOLLOWING GROUND HAVE BEEN RAISED:- 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ESTI MATE MADE BY THE AO PROFIT @ 8% ON MORBE PROJECT AND ADDING THE SAME DURING THE YEAR. 2. THE LEARNED CIT(A) ERRED IN CONFIRMING AN AMOUNT OF RS.29965/- U/S 40A(3) OF THE I.T. ACT 1961. 3. THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWA NCE OF AN AMOUNT OF RS.30500/- OUT OF DONATIONS, NOT CLAIMED BY THE ASSESSEE AND WRONGLY ADDING THE SAME TO THE ASSESSE ES INCOME. ITA NO. 7902/MUM/2010 ASSESSMENT YEAR: 2003-04 2 4. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ESTIM ATE OF NET PROFIT @ 8% FROM THE SALE OF DEVELOPMENT RIGHTS WHE N ALL THE DETAILS WERE SUBMITTED TO THE CIT(A). 2. AT THE OUTSET LEARNED COUNSEL, DR. P. DANIEL SU BMITTED THAT GROUND NO. 1 IS NOT PRESSED AND ACCORDINGLY, THE SAME IS D ISMISSED AS NOT PRESSED. 3. IN GROUND NO. 2 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.29,965/- MADE U/S 40A(3). THE ASSESSING OFFICER NOTED THAT ASSESSEE HAS MADE CASH PAYMENT EXCEEDING RS. 20,000 /- FOR SUMS AGGREGATING RS.3,16,666/-, RELATING TO PAYMENT MADE TO LABOURERS, TELEPHONE CHARGES, PURCHASE OF STEEL, GARDENING AND PLANTATION, VEHICLE EXPENSES, ETC. ACCORDINGLY, HE DISALLOWED 20% OF TH E SAID AMOUNT WHICH WORKED OUT TO RS.63,333/-. BEFORE THE LD. CIT(A), T HE ASSESSEE SUBMITTED THAT SO FAR AS PAYMENT MADE TO THE LABOUR ERS ARE CONCERNED, NONE OF THE PAYMENTS EXCEEDED THE PERMISSIBLE LIMI T OF RS.20,000/- PER LABOUR. REGARDING PAYMENT OF PURCHASE OF STEEL, TEL EPHONE CHARGES ETC. THE SAME WERE MADE THROUGH CHEQUES OR DDS. LD CIT(A ) ASKED FOR THE REMAND REPORT FROM THE AO WHO AFTER EXAMINING NATUR E OF PAYMENT, QUANTIFIED THE DISALLOWANCE IN THE FOLLOWING MANNER :- NATURE & PARTICULARS OF EXPENDITURE DATE OF PAYMENT AMT. PAID OTHERWISE THAN BY ACCOUNT PAYEE CHEQUE/DRAFT 20% OF SUCH EXPENDITURE RS. PURCHASE STEEL PANVEL IMPREST 13.06.02 22,000 4,400 ITA NO. 7902/MUM/2010 ASSESSMENT YEAR: 2003-04 3 ACCORDINGLY, THE LD. CIT(A) CONFIRMED THE DISALLOWA NCE OF RS.29,965/- . 4. BEFORE US, MR. DANIEL, SUBMITTED THAT AS REGARD THE PAYMENT RELATING TO GARDENING AND PLANTATION, THE PAYMENT WAS MADE T O KERALA FOREST DEPARTMENT FOR THE PURCHASE OF SEEDLINGS. IN SUPPOR T, HE REFERRED TO BILLS AND VOUCHERS ALONG WITH THE LETTER OF THE FOR EST RANGE OFFICER WHICH WAS FILED BEFORE THE AUTHORITIES BELOW. ACCOR DINGLY, HE SUBMITTED THAT THE PAYMENT IS MADE TO THE GOVERNMENT DEPARTME NT AND THEREFORE, NO DISALLOWANCE U/S 40A(3) SHOULD BE MADE AS PER RU LE 6DD. REGARDING TELEPHONE CHARGES, THE SUBMITTED THAT THE SAME PERT AINED TO TELEPHONE BILL OF DIRECTOR AND HAS NOT BEEN CLAIMED AS EXPEND ITURE BY THE ASSESSEE, THEREFORE, NO DISALLOWANCE IS CALLED FOR. REGARDING PURCHASE OF STEEL FROM PANVEL OFFICE, HE SUBMITTED THAT THE SAM E WAS ON ACCOUNT OF IMPREST ACCOUNT AND IN SUPPORT, VOUCHERS WERE SUBMI TTED BEFORE THE AUTHORITIES BELOW THAT THERE WAS NO CASH PURCHASE B UT TRANSFER FROM ONE OFFICE TO OTHER. REGARDING OTHER PAYMENTS, HE SUBMI TTED THE PROVISIONS OF 40A(3) ARE ATTRACTED AND THEREFORE, DISALLOWANCE CAN BE CONFIRMED. TELEPHONE CHARGES 14.06.02 23,161 4,632 GARDENING PLANTATION 20.07.02 35,300 7,060 VEHICLE EXPENSES 24.12.03 20,206 4,041 PURCHASE STEEL MORBE 27.02.03 24,572 4,914 PURCHASE STEEL PANVEL 07.01.03 24,590 4,918 TOTAL 29,965 ITA NO. 7902/MUM/2010 ASSESSMENT YEAR: 2003-04 4 5. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE OP INION THAT FOLLOWING EXPENSES ARE TO BE DISALLOWED U/S 40A(3), AS ADMITT ED BY THE LD. COUNSEL:- VEHICLE EXPENSES 24.12.03 20,206 4,041 PURCHASE STEEL MORBE 27.02.03 24,572 4,914 PURCHASE STEEL PANVEL 07.01.03 24,590 4,918 HOWEVER, SO FAR AS DISALLOWANCE ON ACCOUNT OF PURCH ASE OF STEEL FROM PANVEL OFFICE IMPREST ACCOUNT, TELEPHONE CHARGES OF DIRECTION AND GARDENING AND PLANTATION, THE SAME CANNOT BE DISALL OWED U/S 40A(3) AS PER THE REASONS GIVEN BY THE LEARNED COUNSEL. ACCOR DINGLY, THE ASSESSEE GETS RELIEF OF RS.16,092/- AND BALANCE AMOUNT OF RS .13,873/- IS CONFIRMED. THUS GROUND NO. 2 IS PARTLY ALLOWED. 6. REGARDING GROUND NO. 3, RELATING TO DISALLOWANCE OF RS.30,500/- OUT OF DONATIONS, THE LEARNED COUNSEL SUBMITTED THA T THE ASSESSEE HAS NOT CLAIMED ANY SUCH CLAIM OF DONATION IN THE COMPU TATION OF INCOME, RATHER IT APPEARS IN THE LEDGER ACCOUNT OF MANAGING DIRECTOR. IT IS THE PAYMENT MADE BY THE INDIVIDUAL AND NOT BY THE ASSES SEE, THEREFORE, NO DISALLOWANCE SHOULD BE MADE IN THE HANDS OF THE ASS ESSEE. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE SAID DISALLOWANCE AF TER VERIFYING THE CONTENTION OF THE ASSESSEE THAT THE AMOUNT OF DONAT ION HAS NOT BEEN CLAIMED BY THE ASSESSEE. 7. IN GROUND NO. 4 THE ASSESSEE HAS CHALLENGED THE ESTIMATE OF NET PROFIT RATE OF 8% FROM THE SALE OF DEVELOPMENT RIGH TS. THE BRIEF FACTS ARE ITA NO. 7902/MUM/2010 ASSESSMENT YEAR: 2003-04 5 THAT, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CO NSTRUCTION AND DURING THE YEAR IT HAS SOLD ITS DEVELOPMENT RIGHTS TO ANOT HER PERSON FOR RS. 70 LAKHS. ON THE SAID PROJECT, THE ASSESSEE HAD INCURR ED COST/EXPENSES OF RS.68 LAKHS AND THEREFORE, THE ASSESSEE HAD ONLY GA INED RS. 2 LAKHS FROM THE SAID PROJECT. THE ASSESSING OFFICER HELD T HAT THE EXPENDITURE OF RS.68 LAKHS IS NOT FULLY SUPPORTED BY EVIDENCES AN D THEREFORE, THE PROFIT DISCLOSED BY THE ASSESSEE CANNOT BE ACCEPTED, ACCOR DINGLY, HE ESTIMATED THE PROFIT @ 8% OF THE SALE PROCEEDS OF RS.70 LAKHS . 8. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF FINDING GIVEN IN THE IMPUGNED ORDERS, IT IS NOTED THAT ASSESSEE HAS DISCLOSED RECEIPT OF RS. 70 LAKHS AGAINST SALE OF DEVELOPMENT RIGHTS TO M/S. SHELTER BUILDER AND DEVELOPER. THE ASSESSEE HAS ACQUIRED THE SAID P ROJECT AFTER MAKING THE PAYMENT OF RS. 68 LAKHS TO CIDCO AND 16 MEMBERS OF THE TRIMURTI CO-OP. HSG. SOCIETY. THE ASSESSING OFFICER HELD THA T, ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE PAYMENT TO THESE PARTI ES AND ACCORDINGLY, HE ESTIMATED THE NET PROFIT OF 8%. IN THE FIRST APP ELLATE PROCEEDINGS, THE LD. CIT(A) HAD CALLED FOR THE REMAND REPORT, CONTEN TS OF WHICH ARE AS UNDER:- AS FAR AS THE SALE OF DEVELOPMENT RIGHTS ARE CONCE RNED THE ASSESSEE HAS ENCLOSED COPIES OF DEVELOPMENT AGREEME NT OF RS. 70 LAKHS AND DETAILS OF EXPENSES OF RS. 68 LAKHS. H OWEVER, THE DETAILS OF EXPENSE ENCLOSED ARE IN RESPECT OF THE A MOUNT PAID TO LIST OF MEMBER OF TRIMURTI CO-OP HSG. SOCIETY AND CIDCO IN THE YEAR 1994-95 AND 1995-96. HOWEVER, THE SAID EXPENSE S HAVE NOT BEE PAID BY THE ASSESSEE COMPANY VIZ. ENKAY HOMES L TD. MOREOVER, DEVELOPMENT RIGHTS AGREEMENT PURCHASED BY THE ASSESSEE COMPANY IS IN JAN. 2003. THEREFORE, IF AT ALL THE EXPENSES WOULD HAVE BEEN INCURRED, IT WOULD HAVE BE EN INCURRED ONLY AFTER THE PURCHASE OF DEVELOPMENT RIGHTS AFTER JANUARY 2003. WHILE THE BILLS ATTACHED ARE ALL PERTAINING TO YEAR 94-95 AND NOT PAID BY THE ASSESSEE COMPANY. THEREFORE, DISALLOWAN CE MADE IN ITA NO. 7902/MUM/2010 ASSESSMENT YEAR: 2003-04 6 THE ASSESSMENT ORDER U/S 143(3) AMOUNTING TO RS.3,6 0,000/- HAS BEEN RIGHTLY MADE. THE LD. CIT(A) HAS CONFIRMED THE ORDER ACTION OF TH E AO BASED ON THE REMAND REPORT. THE SOLE GROUND FOR REJECTING THE AS SESSEES CONTENTION BY THE AO IS THAT, THE DEVELOPMENT RIGHTS AND AGREE MENT HAS BEEN EXECUTED BY THE ASSESSEE IN JANUARY 2003, WHEREAS T HE BILLS FOR PAYMENTS ATTACHED ARE PERTAINING TO YEAR 1994-95 AN D 1995-96, WHICH MAINLY CONSISTED OF AMOUNT PAID TO THE LIST OF THE MEMBER OF THE TRIMURTI COOPERATIVE HOUSING SOCIETY AND CIDCO AND THAT THE SAID PAYMENT WAS NOT MADE BY THE ASSESSEE COMPANY ITSELF . IF THE ASSESSEE HAS SOLD THE RIGHTS TO DIFFERENT DEVELOPER FOR RS.7 0 LAKHS AND HAS ALSO INCURRED EXPENDITURE IN THE FORM OF PAYMENT FOR ACQ UIRING THE RIGHT EARLIER, THEN SUCH A COST OR EXPENDITURE HAS TO BE ALLOWED FROM THE SALE PROCEEDS. THERE IS NO ALLEGATION THAT THE PAYMENT M ADE BY THE ASSESSEE IN THE EARLIER YEARS HAVE BEEN CLAIMED BY THE ASSES SEE. THESE COSTS ARE ALWAYS TAKEN TO WORK-IN-PROGRESS. THE ASSESSEE HAD SPENT MONEY TO MADE THE PAYMENTS TO THE MEMBERS OF CO-OPERATIVE HO USING TO THE CIDCO TO ACQUIRE THE RIGHTS TO DEVELOP, THEN SUCH A PAYMENT HAS TO BE ALLOWED AS COST. NO PROPER BASIS HAS BEEN GIVEN EIT HER BY THE AO OR BY THE LD. CIT(A), TO ESTIMATE THE PROFIT ON SALE OF R IGHTS. IF THE COST HAS BEEN INCURRED IN THE EARLIER YEAR FOR THE ACQUISITI ON OF DEVELOPMENT RIGHTS AND IF THE SAME HAS BEEN SOLD IN THIS YEAR, THEN, THE SAME HAS TO BE ALLOWED. IT IS NOT THE CASE OF THE DEPARTMENT TH AT THE ASSESSEE HAS CLAIMED THE COST/EXPENDITURE IN THE EARLIER YEARS, THEREFORE, THE PROFIT HAS TO BE TAKEN AT RS.2,00,000 AS SHOWN BY THE ASSE SSEE AND ADDITION CONFIRMED BY THE LD. CIT(A) ON ESTIMATE OF NET PROF IT OF 8% IS DELETED. ACCORDINGLY, THE GROUND NO. 4 IS TREATED AS ALLOWED . ITA NO. 7902/MUM/2010 ASSESSMENT YEAR: 2003-04 7 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF MARCH, 2015. SD/- SD/- (D.KARUNAKAR RAO) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 25.03.2015 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR E BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.