DCIT CIR 1, MUMBAI V. RAVECHI PROPERTIES, MUMBAI

ITA 8330/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88517 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 28-01-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 01-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LOVE KUMAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, AM AND SHRI VIJAY PAL RA O, JM ./ I.T.A. NO. 8330/MUM/2010 ( / ASSESSMENT YEAR: 2007-08) DY. CIT, CENTRAL CIRCLE-1, PAWAR INDUSTRIAL ESTATE, 2 ND FLOOR, EDULJI ROAD, CHARAI, THANE (W) / VS. RAVECHI PROPERTIES 26 GUIDE BUILDING, LD RUPAREL MARG, NEPEAN SEA ROAD, MUMBAI ./! ./PAN/GIR NO. AAIFR 8765 K ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) ' % & / APPELLANT BY : SHRI LOVE KUMAR #$ ' % & / RESPONDENT BY : SHRI SATISH CHANDAK ' ( ) % * + / DATE OF HEARING : 29.01.2015 , -. % * + / DATE OF PRONOUNCEMENT : 27.02.2015 / / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-I, MUMBAI (CIT(A) FOR SHO RT) DATED 31.08.2010, ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143 (3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 20 07-08 VIDE ORDER DATED 30.12.2009. 2 ITA NO. 8330/MUM/2010 (A.Y.2007-08) DY. CIT VS. RAVECHI PROPERTIES 2. THE ONLY ISSUE IN THIS APPEAL IS THE VALIDITY OR OTHERWISE IN LAW OF THE DELETION OF THE DISALLOWANCE EFFECTED U/S.40(A)(IA) OF THE ACT BY THE ASSESSING OFFICER (A.O.) IN THE FACTS AND CIRCUMSTANCES OF THE CASE, HAVING BEEN SI NCE DELETED BY THE FIRST APPELLATE AUTHORITY. 3. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE FIRM, ENGAGED AS BUILDERS AND DEVELOPERS, WERE OBSERVED BY THE A.O. DURING THE CO URSE OF THE ASSESSMENT PROCEEDINGS TO HAVE MADE PAYMENTS TOWARDS ITS PROJECT IN AN AG GREGATE OF RS.49,50,106/- DURING THE MONTHS OF JANUARY AND FEBRUARY, 2007. TAX, THOUGH D EDUCTED AT SOURCE IN RESPECT THEREOF, STOOD DEPOSITED TO THE CREDIT OF THE CENTRAL GOVERN MENT ONLY ON 07.04.2007, I.E., BEYOND THE TIME LIMIT ALLOWED U/S.200 AND, RESULTANTLY, U/ S.40(A)(IA). A DISALLOWANCE WAS, ACCORDINGLY, WARRANTED. THE ASSESSEE, IN EXPLANATIO N, WOULD SUBMIT THAT IT HAD COMPLIED WITH THE PROVISION OF TAX DEDUCTED AT SOURCE (TDS) IN LETTER AND SPIRIT, SO THAT THE CONDITION OF SECTION 40(A)(IA) SHOULD BE CONSIDERED AS SUBSTANTIALLY SATISFIED. FURTHER, IN- AS-MUCH AS THE IMPUGNED PAYMENTS, MADE AT THE FAG E ND OF THE RELEVANT YEAR, WERE CARRIED OVER IN THE FORM OF WORK-IN-PROGRESS (WIP), NO CLAIM IN THEIR RESPECT HAD IN FACT BEEN MADE, SO THAT NO DISALLOWANCE U/S.40(A)(IA) CO ULD BE MADE. IN SUM, DISALLOWANCE U/S.40(A)(IA), I.E., ASSUMING A DEFAULT THERE-UNDER , OR ITS NON-SATISFACTION, COULD ONLY BE FOR THE YEAR IN WHICH THE WIP WOULD STAND TO BE SET OFF AGAINST THE SALES; THE ASSESSEE FOLLOWING PROJECT COMPLETION METHOD. THE SAME DID NOT FIND FAVOUR WITH THE A.O., WHO FOUND THE SAME MISPLACED AND, ACCORDINGLY, EFFECTED THE IMPUGNED DISALLOWANCE. IN APPEAL, HOWEVER, THE SAID ARGUMENT FOUND FAVOUR WIT H THE LD. CIT(A), IN WHOSE VIEW NO EXPENDITURE HAD BEEN THUS CLAIMED BY THE ASSESSEE I N RESPECT OF THE IMPUGNED SUM AND, ACCORDINGLY, THE QUESTION OF DISALLOWANCE DID NOT A RISE. AGGRIEVED, THE REVENUE IS IN APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEES ARGUMENT, APPEALING AT FIRST BLUSH, IS MISCONCEIVED. IT IS WHOLLY INAPPOSITE TO STATE THAT NO EXPENDITURE HAD IN FACT BEEN INCURRED OR CLAIMED BY THE 3 ITA NO. 8330/MUM/2010 (A.Y.2007-08) DY. CIT VS. RAVECHI PROPERTIES ASSESSEE FOR THE CURRENT YEAR. THE ASSESSEE, FOLLOW ING MERCANTILE METHOD OF ACCOUNTING, AN EXPENDITURE BECOMES ENTITLED TO BE CLAIMED BY IT ON THE LIABILITY IN ITS RESPECT BEING INCURRED (REFER: CALCUTTA CO. LTD. VS. CIT [1959] 37 ITR 1 (SC); CIT V. EXCEL INDUSTRIES LTD . [2013] 358 ITR 295 (SC)), WHICH IN THE PRESENT CA SE IS NOT IN DOUBT OR DISPUTE; THE ASSESSEE HAVING IN FACT ALSO PAID THE SAID SUMS TO THE RELEVANT PARTIES, SETTLING OR ADJUSTING TO THAT EXTENT THE SAID LIABILITY. IT IS RATHER ONL Y FOR THE REASON THAT THE EXPENDITURE STANDS SUFFERED AND INCURRED, THAT, BEING IN DIRECT RELATI ON TO THE WORK UNDERTAKEN, WHICH HAS NOT BEEN SOLD OR REALIZED OR OTHERWISE TRANSFERRED BY T HE YEAR-END, THAT THE SAID EXPENDITURE, IN THE FORM OF ACCUMULATED COST, WARRANTS BEING CAR RIED OVER AS A PART OF THE COST OF THE INVENTORY. IN OTHER WORDS, IT IS ONLY ON ACCOUNT OF THE EXPENDITURE BEING INCURRED THAT IT QUALIFIES TO BE A COST AND, THUS, ENTITLED TO BE CA RRIED OVER AS A PART OF THE COST IN COMPUTING THE INCOME FOR THE YEAR, I.E., ON MATCHIN G PRINCIPLE. THE CARRYING OVER OF THE COST OF THE UNSOLD GOODS IS ONLY AN APPLICATION OF THE CONCEPT OF MATCHING PRINCIPLE, IN- AS-MUCH AS ONLY THE COST OF THE GOODS SOLD OR REVEN UE IN RESPECT OF WHICH IS REALIZED, IS LIABLE TO BE SET OFF OR ADJUSTED AGAINST THE SAID R EVENUE, SO THAT THE BALANCE COSTS, THOUGH INCURRED, HAVE TO BE NECESSARILY CARRIED OVER IN AC COUNTS, WHICH IS THUS SOLELY FOR THE PURPOSE OF AND GUIDED BY THE CONSIDERATION OF DETER MINING THE INCOME, WHICH IS TO BE AS PER THE METHOD OF ACCOUNTING BEING REGULARLY FOLLOW ED. THE MATTER IS NOT VIRGIN, AND FINDS CONSIDERABLE ELUCIDATION BY THE HONBLE COURTS OF L AW, AS BY THE APEX COURT PER ITS CELEBRATED DECISIONS IN THE CASE OF CHAINRUP SAMPATRAM VS. CIT [1953] 24 ITR 481 (SC); AND CIT VS. BRITISH PAINTS INDIA LTD. [1991] 188 ITR 44 (SC), TO NAME SOME. THE VALUE OF STOCK ITSELF IS A RESULT OF AND, ACCORDINGLY, CO NFIRMS AND VALIDATES THE FACT OF COST HAVING BEEN INCURRED AND CLAIMED. WE MAY IN THIS RE GARD REPRODUCE THE RELEVANT PART FROM THE DECISION IN THE CASE OF RAJ PETRO SPECIALITIES (P.) LTD. VS. ASST. CIT [2013] 58 SOT 60 (MUM)(URO): IT IS ONLY WHERE THE COST IS INCURRED THAT THE SAM E WOULD STAND TO FORM PART OF THE OPERATING STATEMENT, AND QUALIFY FOR BEING R ECOGNISED AS A PART OF COST OF GOODS UNSOLD AS AT THE YEAR-END, I.E., THE CLOSI NG STOCK BY DEFINITION. IT IS THIS ADDING OF THE TAX/DUTY COST TO THE VALUE OF TH E CLOSING STOCK WITHOUT MAKING A CORRESPONDING ALLOWANCE FOR THE SAME IN TH E TRADING ACCOUNT THAT 4 ITA NO. 8330/MUM/2010 (A.Y.2007-08) DY. CIT VS. RAVECHI PROPERTIES WOULD LEAD TO A DISTORTED PICTURE AND A PROFIT FIGU RE INCONSISTENT WITH THE ACTUAL PROFIT EARNED/ACCRUED. THE MATTER ADMITS OF NO DEBATE AFTER THE CO-OPTION OF THE NON OBSTANTE CLAUSE OF S. 145A ON THE STATUTE-BOOK, STATUTORILY PRESCRIBING T HE PRINCIPLES TO BE FOLLOWED FOR VALUING, AMONG OTHERS, STOCK-IN-TRADE AS AT THE BEG INNING AND END OF THE RELEVANT YEAR, PROVIDING THUS A LEGAL BASIS FOR THE ADOPTION OF TH E PRINCIPLES OF COMMERCIAL ACCOUNTING AS WELL AS THE STANDARD ACCOUNTING PRACTICES, IN-AS -MUCH AS ONLY A SET OFF OF THE RELEVANT COST WOULD RESULT IN DETERMINATION OF THE CORRECT I NCOME. THE SAME, BESIDES BEING IN AGREEMENT WITH THE ACCOUNTING PERCEPTS, RESULTS IN PROVIDING A UNIFORM ACCOUNTING TREATMENT FOR ALL THE ASSESSEES. THE TWO CONCEPTS, I.E., OF INCURRING THE EXPENDIT URE AND THE SET OFF THEREOF IN VIEW OF THE MATCHING PRINCIPLE, ARE SEPARATE AND DISTINC T, AND THE DIFFERENCE NEEDS TO BE RECOGNIZED AND APPRECIATED. THE YEAR IN WHICH THE E XPENDITURE MAY IMPACT THE REVENUE OR DEPRESS THE PROFIT IS AN ALTOGETHER DIFFERENT MA TTER, WITH WHICH WE CAN HARDLY BE CONCERNED WITH. THIS IS AS THE DISALLOWANCE U/S. 40 (A)(IA), A NON-OBSTANTE CLAUSE, IS ONLY TOWARD COMPUTING THE TAXABLE INCOME UNDER THE ACT, WHICH THOUGH BASED THEREON, IS YET LEGALLY AT VARIANCE WITH THE CONCEPT OF COMMERCIAL PROFIT. A SIMILAR ARGUMENT, I.E., QUA PURCHASE OF STOCK-IN-TRADE, RAISED IN THE CONTEXT O F SECTION 40A(3), MANDATING DISALLOWANCE OF EXPENDITURE WHERE PAID IN CASH ABOV E A THRESHOLD LIMIT, WAS REJECTED BY THE APEX COURT IN ATTAR SINGH GURMUKH SINGH VS. ITO [1991] 191 ITR 667 (SC). IT WAS EXPLAINED THAT THE TERM EXPENDITURE, THOUGH NOT DEF INED UNDER THE ACT, IS A TERM OF WIDE IMPORT, TAKING INTO ITS AMBIT ALL OUTGOINGS OF THE BUSINESS. PURCHASES, INCLUDING THAT OF STOCK-IN-TRADE, WOULD THUS QUALIFY TO BE EXPENDITU RE, WHICH WOULD BE SO EVEN FOLLOWING THE PRINCIPLES OF COMMERCIAL ACCOUNTING (REFER PG. 673). THE APEX COURT, IN DOING SO, ENDORSED THE VIEW OF SEVERAL HIGH COURTS, DISAPPROV ING THE LONE DECISION TO THE CONTRARY BY THE GAUHATI HIGH COURT IN CIT VS. HARDWARE EXCHANGE [1991] 190 ITR 61 (GAU), STATING THAT IT WAS UNABLE TO AGREE WITH ITS VIEW T HAT PURCHASE OF STOCK-IN-TRADE WAS NOT EXPENDITURE INCURRED AS THE MONEY DID NOT GO OUT IR RETRIEVABLY IN SUCH A CASE. AS SOUGHT 5 ITA NO. 8330/MUM/2010 (A.Y.2007-08) DY. CIT VS. RAVECHI PROPERTIES TO BE EXPLAINED BY US, THE EXPENDITURE STANDS INCUR RED ON THE CORRESPONDING LIABILITY BEING INCURRED. AS SUCH, WHETHER THE SAID MONEY STA NDS TO BE RECOUPED THROUGH SALES - WHETHER AT A PROFIT OR LOSS - OR NOT, AS WHERE THE STOCK-IN-TRADE IS UNSOLD AS AT THE YEAR- END, WOULD NOT BE RELEVANT, OR MAKE IT ANY LESS AN EXPENDITURE. BE THAT AS IT MAY, IN OUR VIEW, THE ASSESSEES CAS E MERITS ACCEPTANCE. THIS IS AS THE AMENDMENT TO SE. 40(A)(IA), I.E., VIDE FINANCE ACT, 2010 W.E.F. 01/4/2010, WHEREBY THE DEPOSIT OF TAX DEDUCTED AT SOURCE, DEPOSITED WITH T HE CENTRAL GOVERNMENT BY THE DUE DATE OF THE FILING THE RETURN FOR THE RELEVANT YEAR, I.E ., WHERE THE TAX WAS DEDUCTIBLE AT ANY TIME DURING THE RELEVANT PREVIOUS YEAR, HAS BEEN INTERPR ETED BY THE HONBLE COURTS OF LAW AS RETROSPECTIVE IN NATURE, SO THAT IT WOULD APPLY FOR THE CURRENT YEAR AS WELL. THE DECISIONS BY THE HIGHER COURTS OF LAW, AS IN THE CASE OF CIT V. RAJINDER KUMAR [2014] 362 ITR 241 (DEL) AND CIT V. NARESH KUMAR [2014] 362 ITR 256 (DEL), HAVE READ DOWN THE SAID AMENDMENT, HOLDING IT AS RETROSPECTIVE ON THE GROUN D OF IT BEING ONLY CLARIFICATORY AND TOWARD MITIGATING THE HARDSHIP BEING CAUSED AND, FU RTHER, OF THE PAYMENT BY DUE DATE QUA THE DEDUCTIONS EFFECTED FOR THE FIRST ELEVEN MONTHS OF THE RELEVANT PREVIOUS YEAR AS SUFFICIENT COMPLIANCE OF THE PROVISION. ACCORDINGLY , THE DISALLOWANCE STANDS TO BE DELETED. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED . 0. *1 % 0 % * 23 ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 27, 2015 SD/- SD/- (VIJAY PAL RAO) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ' 4) MUMBAI; 5( DATED : 27.02.2015 .(../ ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. ' 6* ( ) / THE CIT(A) 6 ITA NO. 8330/MUM/2010 (A.Y.2007-08) DY. CIT VS. RAVECHI PROPERTIES 4. ' 6* / CIT - CONCERNED 5. 9 : #*(;< , + ;<. , ' 4) / DR, ITAT, MUMBAI 6. : = > ) / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ' 4) / ITAT, MUMBAI