Hi Tech Theatre - 70mm, Hyderabad V. ACIT, Hyderabad

ITA 823/HYD/2005

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1376 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2009
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2001-2002
• Appeal Filed On: 29-07-2005
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: E S NAGENDRA PRASAD
• Assessee Lawyers: P MURALIMOHANA RAOCA
• Section: 133A; 69; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.822 & 823/HYD/2005 : ASSTT. YEARS:20 00-01& 2001-02 HITECH THEATRE 70 MM, HYDERABAD (PAN AACCA2734) ITA NOS.887 & 888/HYD/2005 ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 13(1), HYDERABAD. VS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 13(1), HYDERABAD. ASST.YRS: 2000-01 & 2001-02 HITECH THEATRE 70 MM, HYDERABAD (PAN AACCA2734) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.MURALIMOHANA RAO,CA RESPONDENT BY : SHRI E.S.NAGENDRA PRASAD, DR O R D E R PER CHANDRA POOJARI , ACCOUNTANT MEMBER: THESE FOUR APPEALS IN ALL ARE CROSS APPEALS DIRECTED AGAI NST THE ORDER OF THE LEARNED CIT(A)-II, HYDERABAD DATED 27- 5-2005 AND THEY PERTAIN TO THE ASSESSMENT YEARS 2000-01 AND 2001-02 RESP ECTIVELY. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNE RSHIP FIRM CONSTITUTED BY THE PARTNERSHIP DEED DT.1-5-1999 CONSISTIN G OF THREE PARTNERS WITH THE OBJECT OF CARRYING ON BUSINESS OF EXHIB ITION OF FEATURE FILMS. DURING THE PREVIOUS YEARS RELEVANT TO THE ASSESSM ENT YEARS 2000-01 AND 2001-02, THE ASSESSEE WAS IN THE PROCESS OF CONST RUCTION 2 OF A CINEMA THEATRE BUILDING FOR THE PURPOSE OF CARRYI NG ON ITS BUSINESS ACTIVITY. IT DID NOT COMMENCE ITS BUSINESS OF EXHIBITION OF FILMS DURING THE PREVIOUS YEAR RELEVANT TO THE YEAR UNDER CONSIDER ATION. THE ASSESSEE COMPLETED THE CONSTRUCTION OF THE BUILDING DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2002-03 AND FILED THE RETURN OF INCOME ADMITTING AS THE BUSINESS COMMENCED DURING THE PREV IOUS YEAR RELEVANT TO THE SAID ASSESSMENT YEAR. A SURVEY ACTION U/ S 133A OF THE INCOME TAX ACT, 1961 (THE ACT) WS CARRIED OUT ON 7-1-200 2. THE ASSESSEE FILED THE RETURNS OF INCOME FOR THE YEARS UNDER CO NSIDERATION ON 29-7-2002 ADMITTING NIL INCOME AS THE ASSESSEE DID NOT COMMENCE ITS BUSINESS ACTIVITY DURING THE YEARS UNDER CONSIDERATIO N. LATER, THE ASSESSING OFFICER ISSUED NOTICES U/S 148 OF THE ACT DT.30-7-20 02 TO REGULARIZE THE RETURNS OF INCOME ALREADY FILED, WHICH WERE SERVED ON THE ASSESSEE ON 12-8-2002. DURING THE PREVIOUS YEARS RELEVAN T TO THE ASSESSMENT YEARS UNDER CONSIDERATION, THE ASSESSEE DID NOT COMM ENCE ITS BUSINESS ACTIVITY I.E. EXHIBITION OF FEATURE FILMS. IT WAS CONSTRUCTING THE THEATRE. THE ASSESSING OFFICER REFERRED THE MATTER TO THE DVO TO ASCERTAIN THE COST OF CONSTRUCTION OF THE CINEMA THEATRE. THE VALUATION OFFICER DETERMINED THE COST OF CONSTRUCTION AT RS.1,23,85, 253. AS THE CONSTRUCTION OF THE THEATRE HAD TAKEN PLACE IN TWO FINA NCIAL YEARS RELEVANT FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02, T HE SAID AMOUNT WAS SEGREGATED BETWEEN THE TWO ASSESSMENT YEARS AT RS.88,46,122 AND RS.35,39,131 RESPECTIVELY. AS THE ASSESSEE ADMITTED THE COST OF CONSTRUCTION OF THE THEATRE BUILDING DURING THE YEARS AT RS.34,71,081 AND RS.21,01,326 RESPECTIVELY FOR THE ASSESSME NT YEARS UNDER CONSIDERATION, THE DIFFERENCE OF RS.23,75,041 AND RS.14,37,805 WAS SOUGHT TO BE TREATED AS THE INCOME OF THE ASSESSEE U/S 69 OF THE ACT FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02 RESPECTI VELY. THE ASSESSING OFFICER UPON RECEIVING THE DVOS REPORT CONSIDERED THE SAME AND THE DIFFERENCE BETWEEN THE AMOUNT DISCLOSED BY THE ASSESSEE AND THAT DETERMINED BY THE VALUATION CELL, ADDED BACK TO THE SAME TO THE 3 TOTAL INCOME AS UNDISCLOSED INVESTMENT U/S 69 OF THE ACT. HO WEVAER, ON APPEAL BEFORE THE LEARNED CIT(A), HE DETERMINED THE COST OF CONSTRUCTION AS FOLLOWS. VALUE AS DETERMINED BY THE VALUATION CELL PRIOR TO ALLOWING SELF SUPERVISION RS.93,62,800 LESS: AS DISCUSSED ABOVE, THE DEDUCTION ON ACCOUNT OF LOBBIES, CORRIDORS ETC. AT 40% RS. 8,85,230 --------------- RS. 84,77,570 LESS: DEDUCTION ON ACCOUNT OF PURCHASE OF CONSTRUCTION MATERIAL BY ONE OF THE PARTNERS WHO IS CARRYING ON BUSINESS IN SUPPLY BUILDING MATERIAL. IT IS FOUND THAT THE APPELLANT PURCHASED THE MATERIAL AND GOT THE CONSTRUCTION DONE THROUGH A CONTRACTOR AND PAID THE BILLS TO AN EXTENT OF RS.28,56,000. THE DIFFERENCE OF RS.56.22 LAKHS REPRESENTS THE COST OF MATERIAL. I DEEM IT FIT TO ALLOW A DEDUCTION OF 7.5% FROM OUT OF THE COST OF MATERIAL PURCHASED IN VIEW OF THE FACT THAT A PARTNER SRI CHANDRAIAH IS CARRYING BUSINESS OF SALE OF BUILDING MATERIAL RS. 4,21,000 ------------------ RS. 80,56,570 LESS: DEDUCTION ON ACCOUNT OF DIFFERENCE IN COST OF CONSTRUCTION BECAUSE OF HALL TYPE CONSTRUCTION 15% RS. 12,08,485 ------------------- RS. 68,48,085 LESS: DIFFERENCE IN THE RATES ADOPTED BY THE CPWD AND LOCAL RATES @ 15% RS. 10,09,215 -------------------- COSTOFCONSTRAUCTAION RS. 58,20,873 ------------------- 4 3. WHILE DETERMINING THE COST OF THE CONSTRUCTION AT RS.5 8,20,873, THE CIT(A) FINALLY SUSTAINED THE ADDITION OF RS.1,51,7 71 FOR THE ASSESSMENT YEAR 2000-01 AND RS.93,695 FOR THE ASSESSMENT YEA R 2001- 02. THE ASSESSEE AGGRIEVED AGAINST THE SUSTENANCE OF THE ADDITIONS BY THE CIT(A) AND THE REVENUE BEING AGGRIEVED AGAINST T HE DELETION OF RS.22,20,270 FOR ASSESSMENT YEAR 2000-01 AND RS.13,44,110 FOR THE ASSESSMENT YEAR 2001-02 RESPECTIVELY ARE THUS IN APPEAL BE FORE US. 4. THE ASSESSEE RAISED A GROUND RELATING TO THE REFERENCE MADE TO THE DVO IN ITS APPEAL. HOWEVER, THE SAME WAS NOT PRE SSED AT THE TIME OF HEARING. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS DI SMISSED AS NOT PRESSED. SINCE ALL OTHER GROUNDS RAISED BY THE ASSESSEE AS W ELL AS THE REVENUE ARE INTER-LINKED, THE APPEALS ARE TAKEN UP T OGETHER FOR DISPOSAL BY ADJUDICATING ALL THE GROUNDS OF APPEAL IN SERIATIM. 5. THE GRIEVANCE OF THE REVENUE IS THAT THE DEDUCTION AT 40 PER CENT ALLOWED BY THE CIT(A) ON THE COST OF CONSTRUCTION OF FI RST FLOOR, CORRIDOR AND LOBBY, ENTRANCE FOIR OF THE FIRST FLOOR, LOBBY A ND PASSAGE OF THE SECOND FLOOR LOBBY AND PASSAGE OF THIRD FLOOR, STAIRCASE, MUMTY ROOM, BLOWER ROOM PASSAGE AND LOBBY IN THIRD FLOOR, BY PLAC ING RELIANCE ON THE PUBLICATION BY THE CHIEF ENGINEER ( VALUATION IN THE MAGAZINE MULAYAM), WHEREIN IT WAS MENTIONED THAT LOBBIES, CORRIDORS AND PA SSAGE ARE NOT TO BE CONSIDERED FOR PLINTH AREA RATES. IN SPITE OF THIS, THE CIT(A) CONSIDERED THE COST RELATING TO THE ABOVE ITEMS OF CONSTRU CTION AT 60% OF THE PRESCRIBED RATE AND GAVE DEDUCTION OF RS.8,85,23 0 OUT OF THE COST INCURRED ON THIS ITEM AT RS.22,13,075 6. THE SECOND GROUND OF APPEAL IN REVENUES APPEAL REL ATES TO DEDUCTION OF AN AMOUNT OF RS.4,21,000 GIVEN BY THE CI T(A) AT 7.5 PER CENT FROM THE COST OF MATERIAL PURCHASED IN VIEW OF THE FACT THAT A PARTNER SHRI CHANDRAIAH OF THE ASSESSEE IS CARRYING BUSIN ESS OF SALE OF 5 BUILDING MATERIAL. SINCE THE PARTNER IS ENGAGED IN T HE SALE OF BUILDING MATERIAL AND NO MIDDLEMAN IS INVOLVED IN THE PURCHASE OF BUILDING MATERIAL, THE ASSESSEE IS BOUND TO SAVE MIDDLEMAN PROFIT AND THE CIT(A) ESTIMATED THIS AT 7.5 PER CENT OF THE MATERIAL COST AND GAVE DEDUCTION FOR THE SAME. 7. THIRD GROUND OF APPEAL RELATES TO DEDUCTION ON ACCO UNT OF DIFFERENCE IN COST OF CONSTRUCTION OF HALL TYPE CONSTRUCTION AT 15 PER CENT WORKS OUT TO RS.12,08,485. THIS DEDUCTION ALSO WAS GIVEN BY THE CIT(A), WHICH IS NOT IN CONSONANCE WITH THE ORDER OF THE TRIBUN AL IN THE CASE OF G.PULLAREDDY CITED SUPRA., WHERE THE TRIBUNAL HELD TH AT IN THE CASE OF HALL TYPE CONSTRUCTION, DEDUCTION AT 5 PER CENT IS TO BE GIVEN. IN THE PRESENT CASE, THE CONSTRUCTION IS RELATING TO A CINEMA HAL L, WHERE THE CPWD RATES CANNOT BE APPLIED DIRECTLY AND APPROPRIATE DEDUCTION IS TO BE GIVEN OUT OF THIS. 8. THE LAST GROUND OF APPEAL RELATES TO DIFFERENCE OF RATE ADOPTED BY THE CPWD AND LOCAL RATES AT 15 PER CENT WORKS OUT TO RS. 10,09,215.IN OUR OPINION, THE VARIOUS DEDUCTION GIVEN BY THE CIT(A ) IS BASED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF G.PULLAREDDY IN ITA NOS. 6503 TO 7103/HYD/2003 VIDE ORDER DT.29-10-2004, WHEREIN IT W AS HELD AT PARAGRAPH-24 OF THE SAID ORDER AS FOLLOWS: WE ARE IN RESPECTFUL AGREEMENT WITH THE AFORESAID ORDER OF THE TRIBUNAL AND HOLD THAT CIT(A) WAS JUSTIFIED IN UPHO LDING PLINTH AREA BASIS FOR DETERMINING COST OF CONSTRUCTION AND GIVING A DEDUCTION OF 15% OF THE COST OF CONSTRUCTION OVER T HE CPWD RATES AND FURTHER REDUCTION OF 10% ON ACCOUNT OF PE RSONAL SUPERVISION. WE DO NOT FIND FORCE IN DEPARTMENTS SUBMISSION THAT THE OBJECT OF DETERMINING THAT RATE OF 10% FOR PERSONAL SUPERVISION WAS GIVEN ONLY BECAUSE THE ASSESSEE IN THAT CASE HIMSELF WAS AN ENGINEER. THAT MAY BE A FACT, WHEN BUT PROPERTY BEING CONSTRUCTED, EVERY PERSON TAKES CARE AND SUPE RVISES THE PROPERTY PERSONALLY AND THE RATE ALLOWED BY THE TRI BUNAL BY 10% WOULD BE APPLICABLE IN ALL SUCH CASES. WE MAY, HOW EVER, SAY 6 HERE THAT THE PROPERTY IN THE CASE OF SMT.SALMA A.M EHDI WAS OF ABOUT 3000 SFT. WHICH IS A VERY SMALL AREA AS COMPA RED TO 1,22,985 SFT. AREA IN THE PRESENT CASE. IT IS AN A DMITTED FACT THAT WHEN A LARGER AREA IS BEING CONSTRUCTED, THERE WILL BE COST ECONOMY IN MANY WAYS FOR BUILT PURCHASES AND A BETT ER BARGAINING POWER AND THE DISCOUNT WHICH IS GIVEN IN CASE OF SMALLER AREA MAY NOT BE SUFFICIENT. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS A VERY HUGE AREA W AS CONSTRUCTED, WE ARE OF THE OPINION THAT A FURTHER D ISCOUNT AT 5% WOULD BE REASONABLE IN ESTIMATING THE COST OF CONST RUCTION. WE DIRECT ACCORDINGLY. HOWEVER, THE CIT(A) GAVE 15% DEDUCTION BECAUSE OF HALL TYPE CONSTRUCTION INSTEAD OF 5% GIVEN BY THE TRIBUNAL IN TH E CASE OF G.PIULLAREDDY CITED SUPRA. AS SUCH, IT IS NOT IN CONSONA NCE WITH THE ABOVE TRIBUNAL ORDER. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RE- COMPUTE THE DEDUCTION IN CONFORMITY WITH THE ABOVE ORD ER OF THE TRIBUNAL. 10. NOW COMING TO THE GROUNDS RAISED BY THE ASSESSEE, THE SAME HAVE BECOME INFRUCTUOUS SINCE WE HAVE DIRECTED THE ASSESSING OFF ICER TO RE- COMPUTE THE COST OF CONSTRUCTION IN CONSONANCE WITH THE TRIB UNAL ORDER CITED SUPRA. 11. IN THE RESULT, THE APPEALS OF THE REVENUE ARE PAR TLY ALLOWED AND THOSE OF THE ASSESSEES ARE DISMISSED. ORDER PRONOUNCED IN THE C OURT ON 20 -11-2009 SD/- SD/- N.R.S. GANESAN CHANDRA POOJARI JUDICIAL MEMBER ACCOUNTANT MEMBER. DT/- 20. 11-2009. *VNR 7 COPY FORWARDED TO: 1. ACIT, CIRCLE 13(1), HYDERABAD 2. M/S HITECH THEATRE 70 MM, C/O P.MURALI & CO., CA., 6-3- 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 3. 4. C.I.T (A)-II, HYDERABAD. CIT, AP., HYDERABAD 5. THE D.R., ITAT, HYDERABAD.