The DCIT, Circle-3(1)(2), Ahmedabad V. M/s. Ratnabhumi Developers Pvt. Ltd., Ahmedabad

ITA 792/AHD/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7088 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 31-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K PARIKH
• Keywords: Earning of tax free income
• Section: 143(3); 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & MS. MADHUMITA ROY, JUDICIAL MEMBER I.T.A. NO.792/AHD/2016 (ASSESSMENT YEAR : 2012-13) DCIT, CIRCLE 3(1)(2), AHMEDABAD. VS. M/S. RATNABHUMI DEVELOPERS PVT. LTD., 207, TURQUOISE, PANCHVATI CROSS ROAD, C. G. ROAD, AHMEDABAD 380 006. AND CO NO. 74/AHD/2016 (IN ITA NO.792/AHD/2016) (ASSESSMENT YEAR : 2012-13) M/S. RATNABHUMI DEVELOPERS PVT. LTD., 207, TURQUOISE, PANCHVATI CROSS ROAD, C. G. ROAD, AHMEDABAD 380 006. VS. DCIT, CIRCLE 3(1)(2), AHMEDABAD. [PAN NO. AACCN 3637 P] ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI D. K. PARIKH, A.R. RESPONDENT BY : SHRI MUDIT NAGPAL, SR. D.R. DATE OF HEARING 08.07.2019 DATE OF PRONOUNCEMENT 23.07.2019 O R D E R PER MS. MADHUMITA ROY - JM: THE INSTANT APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 12.01 .2016 PASSED BY THE ITA NO.792/AHD/2016 & CO NO.74/AHD/2016 M/S. RATNABHUMI DEVELOPERS PVT. LTD. ASST.YEAR 2012-13 - 2 - COMMISSIONER OF INCOME TAX (APPEALS)-9, AHMEDABAD U NDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS T O THE ACT) ARISING OUT OF THE ORDER DATED 30.12.2014 PASSED BY THE DEPUTY COM MISSIONER OF INCOME TAX, CIRCLE 3(1)(2), AHMEDABAD FOR THE ASSESSMENT YEAR 2012-13 WITH THE FOLLOWING GROUNDS: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS I N DELETING THE ADDITION OF RS.21,62,250/- MADE ON ACCOUNT OF NET P ROFIT BY ADOPTING THE PERCENTAGE OF COMPLETION METHOD. 2. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.53,91,736/- MADE ON ACCOUNT OF DISAL LOWANCE OF INTEREST EXPENSES U/S.36(1)(III) OF THE ACT. 3. THE LD. CIT(A) HAS FURTHER ERRED IN LAW AND O N FACTS BY NOT APPRECIATING THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE INVESTMENT IN ASSETS YIELDING EXEMPT INCOME WAS CLE ARLY MADE OUT OF INTEREST FREE FUNDS AVAILABLE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. COMMISSIONER OF INCOME TAX(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 5. IT IS, THEREFORE, PRAYED THAT THE ORDER O F THE LD. COMMISSIONER OF INCOME TAX(A) MAY BE SET-ASIDE AND THAT OF THE ASSE SSING OFFICER BE RESTORED. 3. THE ASSESSEE ENGAGED IN THE BUSINESS OF CONSTRUC TION, FILED ITS RETURN OF INCOME ON 30.09.2012 DECLARING TOTAL INCOME AT RS.6 ,39,91,610/- WHICH WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, UNDE R SCRUTINY NOTICE U/S 143(2) DATED 13.08.2013 WAS SERVED UPON THE ASSESSEE. DURI NG THE COURSE OF ASSESSMENT PROCEEDING, IT WAS FOUND FROM THE RECORD S SUBMITTED BY THE ASSESSEE THAT THE ASSESSEE HAD RECEIVED AN AMOUNT O F RS.2,40,25,000/- AS MEMBERS CONTRIBUTION TOWARDS PROJECT. THE ASSESSEE HAD SHOWN NET PROFIT @8.68% (6,67,14,040 AS PROFIT / 76,77,15,139 AS SAL ES) BUT HAS NOT SHOWN ANY PROFIT ON SUCH MEMBERS CONTRIBUTION. ACCORDING TO T HE LEARNED AO THE INCOME OF THE ASSESSEE IS TO BE TAXED UNDER AS-7 AND HENCE 9% OF PROFIT OF SUCH MEMBERS CONTRIBUTION AMOUNTING TO RS.21,62,250/- HA S BEEN ADDED TO THE TOTAL ITA NO.792/AHD/2016 & CO NO.74/AHD/2016 M/S. RATNABHUMI DEVELOPERS PVT. LTD. ASST.YEAR 2012-13 - 3 - INCOME OF THE ASSESSEE. IN APPEAL, THE SAME WAS DEL ETED BY THE LEARNED CIT(A), HENCE THE INSTANT APPEAL BEFORE US. 4. THE CASE OF THE ASSESSEE IS THIS THAT THE FACT T HAT THE ASSESSEE IS A DEVELOPER AND BUILDER HAS ALREADY BEEN ACCEPTED BY THE LEARNED AO IN THE PRECEDING YEAR WHEREIN ASSESSMENT WAS MADE U/S 143( 3) OF THE ACT CLARIFYING THAT THE APPELLANT IS A DEVELOPER AND AS SUCH AS-7 (PERCENTAGE OF COMPLETION METHOD) IS NOT APPLICABLE AND ITS PROFIT IS REQUIRE D TO BE COMPUTED UNDER ACCOUNTING STANDARD-9 I.E. ON THE BASIS OF PROJECT COMPLETION METHOD BEING DEVELOPING COMMERCIAL COMPLEX AND NOT AS A CONTRACT OR. IN THAT VIEW OF THE MATTER, THE ORDER PASSED BY THE LEARNED ASSESSING O FFICER IS AGAINST THE PROVISION OF THE ACT AND THE SAME HAS BEEN RIGHTLY DELETED BY THE LEARNED CIT(A) AS THE CASE MADE OUT BY THE ASSESSEE BEFORE US. IT APPEARS FROM THE RECORDS THAT THE ASSESSEE IS FO LLOWING THE SAME SYSTEM OF COMPUTATION IN A.Y. 2011-12 WHICH WAS ACC EPTED BY THE REVENUE. IT IS A SETTLED PRINCIPLE OF LAW THAT AS-7 IS APPLICAB LE ONLY TO THE CIVIL CONTRACTORS AND AS-9 IS APPLICABLE TO THE AS-9 DEVELOPERS AND B UILDERS. FURTHER THAT, IT IS FOUND FROM THE DOCUMENTS THAT THE ASSESSEE HAS BEEN FOLLOWING THE SAME RECOGNIZED METHOD OF ACCOUNTING CONSISTENTLY; THE S AID METHOD WAS APPLIED IN 2011-12 WHICH WAS FOLLOWED IN THE YEAR UNDER CONSID ERATION. BUT THE AO HAS MADE ADDITION OF THE MEMBERS CONTRIBUTION RS.21,62, 250/- BASED ON APPLICATION OF AS-7 AND THEREBY APPLYING PERCENTAGE OF COMPLETION METHOD FOR RECOGNITION OF REVENUE. IT IS A FACT THAT THE LEARN ED AO HAS NOT GIVEN ANY FINDING THAT THE METHOD SO APPLIED BY THE APPELLANT IS NOT ABLE TO REFLECT THE TRUE PROFITS NEITHER THE BANK BOOKS OF ACCOUNT OF THE AP PELLANT HAS BEEN REJECTED ON THIS GROUND. WE FIND NO REASON TO DISTURB SUCH METH OD OF ACCOUNTING ADOPTED ITA NO.792/AHD/2016 & CO NO.74/AHD/2016 M/S. RATNABHUMI DEVELOPERS PVT. LTD. ASST.YEAR 2012-13 - 4 - BY THE APPELLANT AND/OR IMPOSING AS-7 FOR WORKING O UT OF THE PROFIT OF APPELLANT BASED ON PERCENTAGE COMPLETION METHOD FOR RECOGNITION OF REVENUE WHICH WAS RIGHTLY TAKEN INTO CONSIDERATION BY THE L EARNED CIT(A) WHILE DELETING ADDITION OF RS.21,62,250/-. THUS, WE FIND NO INFIRMITY IN THE ORDER IMPUGNED ON THE BASIS OF THE DISCUSSION MADE HEREIN ABOVE. HENCE, THE SAME IS HEREBY CONFIRMED AND REVENUES APPEAL IS FOUND TO B E DEVOID OF ANY MERIT AND THUS DISMISSED. 5. 2 ND GROUND RELATES TO DELETION OF ADDITION OF RS.53,91 ,736/- MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES U/S 36 (1)(III) OF THE ACT. 6. THE CASE OF THE ASSESSEE IS THIS THAT THE INVEST MENT MADE BY THE ASSESSEE WAS OUT OF INTEREST FREE FUNDS AVAILABLE WITH IT. I T APPEARS FROM THE RECORDS THAT THE ASSESSEE HAS RECEIVED 70.23 CRORES AS ADVANCES FROM THE MEMBERS ON WHICH NO INTEREST WAS PAYABLE. IT ALSO APPEARS FROM THE B ALANCE SHEET OF THE COMPANY AS ON 31.03.2012 AVAILABLE AT PAPER BOOK BEFORE US THAT THE ASSESSEE IS HAVING SHARE CAPITAL TO THE TUNE OF RS.50,00,000/- AND RES ERVE AND SURPLUS TO THE TUNE OF RS.4,58,21,184/- REFLECTING AT PAGE 29 OF THE PA PER BOOK. THE ASSESSEE IS HAVING MORE INTEREST FREE FUNDS THEN THE BORROWED F UNDS AND ALSO THERE IS INTEREST EXPENDITURE. THE ASSESSEE ALSO INVESTED IN MUTUAL FUNDS DURING THE YEAR UNDER CONSIDERATION OUT OF THE SAID BOOKING AD VANCES FOR A SHORT PERIOD AND INTEREST WAS ALSO EARNED. THE INTEREST EXPENSES HAVE REDUCED FROM RS.2.87 TO 1.42 CRORES AND THE BORROWING HAS ALSO REDUCED F ROM RS.4.57 CRORES TO 1.34 WHICH HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELO W. SINCE THE ASSESSEE IS HAVING HUGE AMOUNT OF INTEREST FREE FUNDS AND THE A SSESSEE HAS REDUCED ITS INTEREST LIABILITY DURING THE FINANCIAL YEAR THE LE ARNED CIT(A) DELETED SUCH ADDITION MADE U/S 36(1)(III) OF THE ACT WHICH ACCOR DING TO US DOES NOT CALL FOR ITA NO.792/AHD/2016 & CO NO.74/AHD/2016 M/S. RATNABHUMI DEVELOPERS PVT. LTD. ASST.YEAR 2012-13 - 5 - ANY INTERFERENCE. IT IS ALSO EVIDENT THAT THE AMOUN T OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PRO FESSIONS FACT OF WHICH HAS ALSO NOT BEEN DISPUTED BY THE REVENUE. THUS TAKING INTO CONSIDERATION THE RATIO LAID DOWN IN FAVOUR OF THE ASSESSEE IN THE SIMILAR SITUATION IN THE JUDGMENTS PASSED IN THE MATTER OF CIT-VS-RELIANCE UTILITIES & POWER LTD REPORTED IN 313 ITR 340 (BOM) AS WELL AS IN THE MATTER OF S. A. BUI LDERS LTD.-VS-CIT REPORTED IN 288 ITR 1 AND ALSO IN THE MATTER OF CIT-VS-TORRE NT LEASING FINANCE TAX APPEAL NO.620 TO 625 OF 2006 AS RELIED UPON BY THE LEARNED AR BEFORE US. WE, CONFIRM THE ORDER PASSED BY THE LEARNED FIRST A PPELLATE AUTHORITY. REVENUES APPEAL IS THUS DISMISSED. CO NO.74/AHD/2016 FOR A.Y. 2012-13: 7. AT THE TIME OF HEARING OF THE MATTER, THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT HE IS NOT PRESSIN G THE CO. HENCE, CO IS DISMISSED AS NOT PRESSED. 8. IN THE RESULT, REVENUES APPEAL AND ASSESSEES C O BOTH ARE DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 23/07/2019 SD/- SD /- ( WASEEM AHMED ) ( MS. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 23/07/2019 PRITI YADAV, SR.PS ITA NO.792/AHD/2016 & CO NO.74/AHD/2016 M/S. RATNABHUMI DEVELOPERS PVT. LTD. ASST.YEAR 2012-13 - 6 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. () / THE CIT(A)-9, AHMEDABAD. 5. , ! ', #$%% / DR, ITAT, AHMEDABAD 6. &' () / GUARD FILE. / BY ORDER, //TRUE COPY// / (DY./ASSTT.REGISTRAR) !, #$ / ITAT, AHMEDABAD 1. DATE OF DICTATION 08.07.2019 (DICTATION PAGES 5) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 11.07.2019 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S 15.07.2019 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER..