ITO, New Delhi V. M/s. Fairwood Consultants Pvt. Ltd., New Delhi

ITA 870/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0358 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Depreciation; Income from undisclosed sources; Reason to believe; TDS
• Section: 271(1)(c); 14A; 154

Judgement Text

870-2010-FC 1 IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B NEW DELHI) BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI K. G. BANSAL, ACCOUNTANT MEMBER I.T.A. NO.870/D/2010 ASSESSMENT YEAR: 2005-06 INCOME TAX OFFICER, VS. M/S FAIRWOOD CONSULTANTS (P) WARD 11(2), LTD., 17, CHITRA VIHAR, NEW DELHI NEW DELHI (APPELLANT) (RESPONDENT) PAN NO.AAACF 1302P APPELLANT BY : MS. MONA MOHANTY, SR. DR RESPONDENT BY: SHRI VINEET GARG, ADVOCATE ORDER PER K.G. BANSAL: AM: THE ASSESSEE FILED ITS RETURN ON 29.10.2005, DECLARING TOT AL INCOME AT `19,170/-. THE RETURN WAS PROCESSED ON 03.02.2006. SU BSEQUENTLY, THE CASE WAS PICKED UP FOR SCRUTINY BY ISSUING NOTICE U/S 143(2). IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER EXAMINED THE ACCOUNTS AN D CAME TO THE CONCLUSION THAT IT IS FOLLOWING PROJECT COMPLETION MET HOD BY RELYING ON ACCOUNTING STANDARD-(AS-7), ISSUED BY THE INSTITUTE OF CHARTERED AC COUNTANTS OF INDIA. ACCORDING TO THE ASSESSING OFFICER, THIS STANDARD RELA TES TO SEVERAL ASPECTS OF ACCOUNTING TREATMENT OF CONSTRUCTION CONTRACTS. THE PROFIT HAS TO BE COMPUTED ON PERCENTAGE COMPLETION METHOD AND NOT PROJECT COMPLETION MET HOD. IN VIEW OF THIS, CERTAIN ADDITIONS WERE MADE TO THE INCOME. CERTAIN DISAL LOWANCES WERE ALSO MADE. THE TOTAL INCOME OF THE ASSESSEE WAS COMPUTED AT `1 4,95,100/-. THE 870-2010-FC 2 OPERATIVE PORTION OF THE ORDER AND COMPUTATION OF INCOM E MADE BY THE ASSESSING OFFICER ARE REPRODUCED BELOW:- FROM THE PERUSAL OF THE ABOVE DISCLOSURE READ WITH PARA 21 OF THE AS-7 IT IS MANDATORY FOR ALL THE ENTERPRISES TO ACCOUNT FOR THE CONSTRUCTION CONTRACTS ON PERCENTAGE COMPLETION METHOD A ND NOT ON PROJECT COMPLETION METHOD. HOWEVER, THE ASSESSEE COMPANY HA S ACCOUNTED FOR ITS INCOME FROM PROJECTS ON PROJECT COMPL ETION METHOD, WHICH IS NOT ACCEPTABLE. AD HOC DEDUCTION OF 25% SHOW N AS ADVANCE AGAINST RUNNING WORK IN PROGRESS AND DEDUCTION FROM INCOME OF `9,34,638/- IS WITHOUT ANY BASIS AND THE SAME IS A DDED TO INCOME. FURTHER NO SUPPORTING DOCUMENTS HAVE BEEN FILED T O JUSTIFY THE VALUATION OF WIP AGAINST A PARTICULAR PROJECT AND NEITHER SEPARATE PROJECT WISE DETAILS OF EXPENSES IS MADE AGAINST `33,76,2 28/- ON THE LOWER SIDE EQUIVALENT TO LAST YEAR WHEN THE ADVANCE RECEIVED FROM WIP WAS `6,26,677/- AS COMPARED TO `37,38,550/- IN T HE CURRENT YEAR. HENCE ADDITION OF `12,26,221/- IS MADE ON THIS A CCOUNT ALSO. A FURTHER ADDITION OF 20% OF WIP, BEING MARGIN ON THE BASIS OF PERCENTAGE COMPLETION METHOD, FOR THE CURRENT YEAR AMOUNTIN G TO `9,20,490/- IS MADE. ASSESSEE COMPANY HAS ALSO SHOWN PROFESSIONAL RECEIPTS OF `2,52,49,477/- AS PER SCHEDULE- 9 OF BALANCE SHEET BEFORE ADJUSTING WIP WHEREAS TDS HAS BEEN CLAIM ED ON RECEIPTS OF `2,60,64,809/-, HENCE I MAKE AN ADDITION OF `8,15,332/- AS THE INCOME FROM UNDISCLOSED SOURCES. I HAVE REASON TO BELIEVE THAT THE ASSESSEE HAS CONCEALED/FILED INACCURATE PARTICULARS OF INCOME, WHICH ATTRACTS THE PROVISIONS OF SECTIONS 271(1)(C) OF THE INCOME-TAX ACT, 1961. COMPUTATION OF TOTAL INCOME IS AS BELOW:- INCOME FROM BUSINESS & : (-)3,60,716 PROFESSION PROFIT AS PER P/L A/C : 2,08,368 ADD: DEPRECIATION AS PER COY ACT :10,80,396 DONATION : 24,000 LOSS ON SALE OF FIXED ASSETS : 3,525 870-2010-FC 3 ADDITION OF WIP :12,26,221 20% ON WIP FOR MARGIN/FEE (20% OF 4602449/-) : 9,20,490/- DIFFERENCE IN TDS CERTIFICATES AND INCOME DISCLOSED : 8,15,332/- AD HOC DEDUCTION OF 25% FROM REPAIR AS DISCUSSED : 9,34,638/- REPAIR & MAINTENANCE OTHER : 1,56,284/- (BEING CARRIED AT THE RESIDENCE OF DIRECTOR MR. R.S. DAS) PF EMPLOYEE CONT. 36(1)(VA) SEP,04 : 16,284/- OCT,04 : 16,516/- PAYMENT TO GRATUITY FUND LIC-(NOT RECOGNIZED) : 48,819/- INSURANCE PREMIUM RELATED TO NEXT PERIOD (NO PROVISION MADE FOR PREPAID EXP) : 20,040/- 20% OF CONVEYANCE ON PER- SONAL ELEMENT : 2,24,182/- 20% OF TELEPHONE : 1,53,024/- 20% OF BUSINESS PROMOTION : 51,334/- 20% OF TRAVELING EXPENSES : 2.37,856/- EXPENSES U/S 14A ON DIVIDEND EARNED OF `1,56,729/- @10% :15,673/- 6152982 61,52,982 TOTAL: : 57,92,266 LESS: INCOME FROM OTHER SOURCES : 3,92,888 DEPRECIATION AS PER INCOME -TAX :11,28,388 EXEMPTED INCOME : 1,56,729 1677005 -16,77,005 41,15,211 INCOME FROM OTHER SOURCE : INTEREST FROM BANK : 3,91,888 GROSS TOTAL INCOME : 45,07,099 DEDUCTION U/S 80-G : 12,000 TOTAL INCOME : 44,95,099 870-2010-FC 4 2. THE ASSESSEE MADE SUBMISSIONS TO THE FOLLOWING EFFECTS BEFORE THE LEARNED CIT(A):- A) THAT THE ASSESSING OFFICER HAS FAILED TO APPRECIATE T HE CONCEPT OF AS-7, AS APPLICABLE TO A CONSULTANCY ENGINEERING CO. A S AGAINST ACTUAL CONSTRUCTION CONTRACT; B) THAT AS PER AS-7, ADVANCE IS NOT TO BE CONSIDERED AS RECEIPT OF INCOME AT ALL, IN THE YEAR OF RECEIPT, AGAINST WHICH THE ASSESSEE HAD ACCOUNTED FOR 75% AS INCOME IN THE YEAR OF RECEIPT, WHIC H IN FACT PREPONED THE TAXABLE INCOME, RATHER THAN DEFERMENT OF THE SAM E, AS STATED BY THE ASSESSING OFFICER; C) THAT THE APPELLANT HAD IN FACT ACCOUNTED FOR ALL TH E INCOME ON THE PERCENTAGE COMPLETION METHOD, AS APPLICABLE TO A CONSULTA NCY CONTRACT, AS DISTINGUISHED FROM A WORKS CONTRACT; D) THAT THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE A SSESSEE ARE FULLY COVERED BY THE CASE OF M.N. DASTUR & CO. LTD. VS. DCIT REPORTED AS 62 ITD 113 (BANGALORE ITAT), WHEREIN AS-7 AN D AS9 HAVE BEEN DISCUSSED THREADBARE AS APPLICABLE TO A CONSULTANCY CO.; E) THAT FULL DETAILS OF WORK IN PROGRESS HAVE BEEN FILED, WHICH HAVE BEEN IGNORED; F) THAT THE COMPUTATION OF WORK IN PROGRESS BY THE ASS ESSING OFFICER IS ERRONEOUS AND WITHOUT ANY BASIS. HE HAS SIMPLY PICKED UP /THE OPENING VALUE OF WIP AND STATED THAT AT LEAST THE SAME SH OULD BE THE VALUE OF CLOSING WORK IN PROGRESS; AND G) THAT INCOME IS NOT TO BE COMPUTED ON THE BASIS OF TD S OR TDS CERTIFICATES. ON THE CONTRARY CREDIT FOR TDS IS TO BE G IVEN IN ACCORDANCE WITH THE INCOME OFFERED IN THE RELEVANT YEAR. A S SUCH THE ASSESSING OFFICER HAS ERRED IN COMPUTING THE INCOME FROM TDS AND EVEN THERE HE HAS OMITTED TO CONSIDER INCOME ACCOUNTED FOR I N OTHER HEADS, I.E. REIMBURSEMENTS, IN STEAD OF CONSULTANCY RECEIP TS AND IGNORING THE SAME FOR TDS CREDIT. 3. AFTER CONSIDERING THE ASSESSMENT ORDER AND /THE SUBMISS IONS MADE BEFORE HIM, THE LEARNED CIT(A) DELETED ALL THE ADDITIONS. HIS FI NDINGS CONTAINED IN PARAGRAPH SIX ARE REPRODUCED BELOW:- I HAVE CAREFULLY EXAMINED THE ASSESSMENT ORDER AND THE WRIT TEN SUBMISSIONS MADE BY THE APPELLANT ON THE ABOVE ISSUES AND I TEND TO AGREE WITH THE APPELLANT HAS IN FACT COMPLIED WITH THE CO MPLIED WITH THE AS-7 AND AS-9 AS APPLICABLE TO AN ENGINEERING CONSU LTANCY 870-2010-FC 5 COMPANY AND THAT THE CASE OF THE APPELLANT IS SQUARELY COVERED BY THE ITAT BANGALORE CASE OF M.N. DASTUR & CO. LTD. TH E TDS RECONCILIATION IS ALSO IN ACCORDANCE WITH LAW. ACCO RDINGLY I DELETE THE ADDITIONS MADE BY THE LEARNED ASSESSING OFFICER AS PER GR OUNDS OF APPEAL NO.3(A) TO (D). GROUNDS OF APPEAL NO.3(E), AD HOC ADDITION MADE ON AC COUNT OF PERSONAL EXPENSES OF DIRECTORS AT `1,56,284/- ON ACCOUNT OF REPAIR & MAINTENANCE OF RESIDENTIAL OFFICE. THERE IS NO DISPUTE TH AT THE EXPENSES HAVE BEEN GENUINELY INCURRED AND AS PER AGREEMENT, SO THAT THE SAME CANNOT BE QUESTIONED IN THE HANDS OF THE CO MPANY, BEING BONAFIDE EXPENSES. THE DISALLOWANCE IS WITHOUT ANY MERIT AND AS SUCH THE ADDITION IS HEREBY DELETED. GROUNDS OF APPEAL NO.3(F), `32,800/-, EPF. THE AMOUN T HAS BEEN TENDERED IN THE BANK WELL IN TIME. AS SUCH NO ADDITION C OULD BE MADE ON THIS ACCOUNT. ASSESSING OFFICER SHOULD VERIFY AND ALLOW THE SAME. GROUNDS OF APPEAL NO.3(G): `48,819/-. APPARENTLY THE AMOUNT IS ACTUAL PAYMENT TOWARDS SALARY ON TERMINATION OF THE REL EVANT EMPLOYEES AND IS NOT ANY CONTRIBUTION TO ANY UNRECOGNIZ ED GRATUITY FUND. AS SUCH THE ADDITION IS UNWARRANTED AND IS DELET ED. GROUNDS OF APPEAL NO.3(H): AD HOC DISALLOWANCE OF `20 ,040/-. AS PER THE DETAILS ON RECORD, THE ASSESSEE COMPANY HAS CORREC TLY ACCOUNTED FOR THE PREPAID EXPENSES, WHICH IN THE CASE OF IN SURANCE AMOUNT TO `33,606/- OUT OF THE GROSS PAYMENT OF `1,56 ,189/-. THERE IS NO BASIS FOR ALLEGING NON-PROVISION OF PREPAID EXPEN SES AMOUNTING TO `20,040/-. THE ADDITION IS DELETED. GROUNDS OF APPEAL NO.3(I), (J), (K), (L)- AD HOC DIS ALLOWANCES OF 20% OF CONVEYANCE, TELEPHONE, BUSINESS PROMOTION AND TRAVEL ING EXPENSES. ALL THESE DISALLOWANCES COULD BE MADE IN THE CASE OF AN INDIVIDUAL BUT NOT IN THE HANDS OF THE ASSESSEE, WHICH IS A CORPORATE ENTITY AND AS PER SETTLED LAW, NO PERSONAL EXPENSES CAN BE IMPUGNED TO SUCH A CORPORATE ENTITY. RESPECTFULLY FOLLOWING TH E CASE LAW AS BROUGHT OUT BY THE APPELLANT ON RECORD, (2005) 199 CTR (GUJ.) 509: 148 TAXMAN 76 (GUJ.): CIT VS. DINESH MILLS LTD.; (20 02) 253 ITR 749 SAYAJI IRON AND ENGG. CO. PVT. LTD.; FOLLOWING CIT V S. L.G. RAMAMURTHI (1977) 110 ITR 453 (MAD.); (2002) 255 IT R 68 (MAD) CIT VS. INDIAN EXPRESS (MADURAI) PVT. LTD.; (1994) 207 I TR 647 CIT VS. 870-2010-FC 6 INDIAN PRODUCTS LTD. (CAL); (1977) 110 ITR 453 (MAD ) CIT VS. L.G. RAMAMURTHI; I HEREBY DELETED ALL THESE FOUR ADDITIONS MADE ON ACCOUNT OF ALLEGED PERSONAL EXPENSES OF THE DIRECTORS OR O FFICERS OF THE COMPANY. GROUNDS OF APPEAL NO.3(N)- THIS GROUND IS WITHDRAWN AS RELIEF ALREADY GIVEN U/S 154 BY THE LEARNED ASSESSING OFFICER. 4. BEFORE US, THE LEARNED DR DREW OUR ATTENTION TO PAGE NOS . 1 TO 3 OF THE ASSESSMENT ORDER, WHICH DEAL WITH THE METHOD OF ACCOUNTI NG FOLLOWED BY THE ASSESSEE, DEFECTS THEREIN, AND ADDITIONS MADE TO THE INCOME RETURNED BY THE ASSESSEE. IT IS EXPLAINED THAT THE ASSESSING OFFICER COMPU TED THE INCOME ON PERCENTAGE COMPLETION OF PROJECT BASIS. HE ALSO FOUND DI FFERENCE IN RECEIPT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND ASCERTAINED O N THE BASIS OF CERTIFICATES FILED FOR TAX DEDUCTION AT SOURCE ON THE BASIS OF WHICH CREDIT HAS BEEN CLAIMED. THEREAFTER, THE INCOME HAS BEEN COMPUTED AT `44,95,100/-. 4.1 THEREAFTER, SHE REFERRED TO THE FINDINGS OF THE LEARNED C IT(A) IN PARAGRAPH NO.6, WHICH HAS ALREADY BEEN REPRODUCED BY US. SHE RELIED O N THE ORDER OF THE ASSESSING OFFICER AND URGED THAT ORDER PASSED BY HIM MAY BE RESTORED. 4.2 IN REPLY, THE LEARNED COUNSEL SUBMITTED THAT THE ASSESS EE IS AN ENGINEER CONSULTANCY FIRM. THEREAFTER, OUR ATTENTION IS DRAWN T OWARDS DISCUSSION ON PAGE 9 OF THE IMPUGNED ORDER. IT IS MENTIONED THAT AT IN THE PER CEPTION OF THE ASSESSING OFFICER, THE ASSESSEE HAS BEEN CARRYING ON THE BUSINESS OF EN GINEERING/PROJECT CONSULTANTS FOR WHICH PROFESSIONAL FEES IS RECEIVED. IT IS NOT ENGAGED IN PHYSICAL CONSTRUCTION. THE ASSESSING OFFICER HAS MENTIONED ABOU T CLOSING WORK IN PROGRESS (WIP), WHICH HAS BEEN VALUED AT `46,02,449/-, WHICH IS , IN FACT, OPENING WIP. THE CLOSING WIP HAS BEEN EVALUATED AT `33,76,228/-, FOR WHICH SUPPORTING DETAILS HAS BEEN FILED. THE ASSESSING OFFICER HAS ALSO MADE CERTAI N OTHER OBSERVATIONS, 870-2010-FC 7 WHICH ARE NARRATED IN PARAGRAPH 3 ON PAGE 2. IT IS SU BMITTED THAT ALL THESE STATEMENTS ARE FULL OF INCONSISTENCIES AND ARE BEYOND TH E MATERIAL ON RECORD. THE ASSESSING OFFICER HAD CALLED FOR VOLUMINOUS DETAILS CO NSISTING OF ABOUT 800 SHEETS, WHICH WERE FILED. THEREFORE, IT IS ARGUED THAT SINCE THE AS SESSMENT ORDER WAS NOT PASSED ON THE BASIS OF FACTS ON RECORD, THE LEARNED CIT( A) PROCEEDED TO DECIDE THE APPEAL ON THE BASIS OF FACTS ON RECORD. THE DETAILS ALS O CONTAIN RE-CONCILIATION OF RECEIPTS ENTERED IN THE BOOKS AND RECEIPTS AS PER TDS CERTIFIC ATES, WHICH FINDS PLACE AT PAGE NOS. 11 & 12 OF THE IMPUGNED ORDER 4.3 OUR ATTENTION IS DRAWN TO PAGE NOS. 92 & 93 OF T HE PAPER BOOK. THESE DETAILS SHOW THE BREAK UP OF OPENING WIP IN TERMS OF VAR IOUS PROJECTS AND TOTALING TO `46,02,448/-. OUR ATTENTION HAS ALSO BEEN DRAWN TO WARDS PAGE NOS. 94 & 95, WHICH FURNISH SIMILAR DETAILS OF CLOSING WIP AT `33, 76,228/-. PAGE NOS. 96 TO 402 FURNISH DETAILS OF VARIOUS EXPENSES. 4.4 IT IS SUBMITTED THAT AS-7 DOES NOT TREAT ADVANCE AS INCOME, AS DONE BY THE ASSESSING OFFICER. AS-9 DEALS WITH THE METHOD OF REVENUE RECOGNITION, WHICH HAS BEEN FOLLOWED BY THE ASSESSEE. THE ASSESSEE HAS ALSO FILED RECO NCILIATION STATEMENT OF THE RECEIPTS SHOWN IN THE BOOKS AND AVAILABLE ON THE RECORD OF ASSESSING OFFICER AS PER TDS CERTIFICATES. THESE DETAILS ARE AVAILABLE ON PAG E NO.122 OF THE PAPER BOOK. THE DETAILS HAVE ALSO BEEN REPRODUCED IN THE IMPUGNED ORDER AS SUBMITTED EARLIER. IN VIEW OF THE FACT THAT ACCOUNTS HAVE BEEN MAI NTAINED ON THE BASIS OF ACCOUNTING STANDARD, RECONCILIATION OF RECEIPTS HAVE BEEN MADE AND DETAILS OF ALL THE EXPENSES HAVE BEEN FURNISHED, IT IS ARGUED THAT NEITHER THE BOOK RESULTS COULD HAVE BEEN ALTERED NOR ANY DISALLOWANCE COULD HAVE BEEN MADE O UT OF THE EXPENSES. 870-2010-FC 8 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSION S MADE BEFORE US. WE FIND THAT THE ASSESSEE HAS FOLLOWED AS-9 FOR ACCOUNTIN G RECEIPTS AS IT IS AN ENGINEERING CONSULTANCY COMPANY. IN THIS STANDARD, REC EIPTS ARE RECOGNIZED ON THE BASIS OF WORK COMPLETED AND CERTIFIED UPTO THE END OF THE YEAR. ADVANCES RECEIVED BY THE ASSESSEE CAN IN NO CASE BE TAKEN AS THE INCOME. FUR THER, THE DETAILS OF ALL THE EXPENSES HAVE BEEN FURNISHED IN WHICH NO DISCREPANCY HA S BEEN POINTED. THE LEARNED CIT(A) HAS ALSO DISCUSSED THAT BEING A CORPORAT E ENTITY, THE ASSESSEE IS NOT CAPABLE OF INCURRING OR ENJOYING ANY PERSONAL EXPENDITUR E. 5.1 THE LEARNED DR HAS ALSO NOT BEEN ABLE TO POINT OUT TO WARDS ANY MISTAKE, FACTUAL OR LEGAL, IN THE IMPUGNED ORDER. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). 6. IN RESULT, THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN OPEN COURT ON 11.02.2011 . SD/- SD/- ( RAJPAL YADAV ) ( K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT ME MBER DT. 11/02/2011 NS COPY FORWARDED TO:- 1. INCOME TAX OFFICER WARD-11(2), NEW DELHI. 2. M/S FAIRWOOD CONSULTANTS PVT. LTD., 17, CHITRA VIHA R, NEW DELHI-92. 3. THE CIT 4. THE CIT (A), NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY 870-2010-FC 9 BY ORDER (ITAT, NEW DELHI).