ACIT 25(3), MUMBAI V. RADHA ENTERPRISES, MUMBAI

ITA 886/MUM/2010

• Counselvise Citation: 88619914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 04-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUBAL
• Assessee Lawyers: R S SHAH
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D : MUMBAI BEFORE SHRI R.V. EASWAR, (PRESIDENT) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO. 886/MUM/2010 ASSESSMENT YEAR :2006-07 ASSTT. COMMISSIONER OF INCOME TAX -25(3) C-11, R.NO.308, PRATYAKSHAKAR BHAVAN BANDRA-KURLA COMPLEX BANDRA (E) MUMBAI-400 051. ..( APPELLANT ) VS. M/S. RADHA ENTERPRISES SHOP NO.1, ALKA BUILDING JAMNADAS ADUKIA ROAD KANDIVILI (W) MUMBAI-400 067. ..( RESPONDENT ) P.A. NO. (AAFFR 8908 K) APPELLANT BY : SHRI M.R. KUBAL RESPONDENT BY : SHRI R. S. SHAH DATE OF HEARING : 21.07.2011 DATE OF PRONOUNCEMENT : . JULY, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 5.11.2009 OF CIT(A) FOR ASSESSMENT YEAR 2006-07. T HE REVENUE IN THIS APPEAL HAS RAISED DISPUTES ON TWO GROUNDS. 2. THE FIRST DISPUTE IS REGARDING ADDITION OF LAND VALUE TO THE VALUE OF WORK IN PROGRESS (WIP). THE ASSESSEE WAS EXECUTING A BUILDING PROJECT AT VILE PARLE, MUMBAI. THE ASSESSEE HAD INCURRED CONS TRUCTION COST OF ITA NO.886/M/10 A.Y:06-07 2 RS.2,35,66,109/- INCLUDING INTEREST PAID TO BANK OF RS.40,46,390/-. THE AO HOWEVER NOTED THAT THE ASSESSEE HAD INCLUDED ONLY 2 5% OF THE COST OF LAND I.E., RS .1,06,78,979/- TO THE CONSTRUCTION COST THOUGH THE TOTAL COST OF LAND WAS RS .4,27,15,916/-. THE ASSESSEE EXPLAINED THAT ONLY 2 5% OF THE COST WAS ADDED AS ONLY 25% OF THE WORK HAD BEEN COMPLETE D. THE AO HOWEVER DID NOT ACCEPT THE CONTENTION RAISED. IT WAS OBSER VED BY HIM THAT THE ASSESSEE HAD ADDED ENTIRE COST OF INTEREST BUT THE LAND ADDED WAS ONLY TO THE EXTENT OF 25%. HE, THEREFORE, ADDED BALANCE COST OF LAND AT RS.3,20,36,937/- AND GROSS PROFIT @ 12.5% DECLARED BY THE ASSESSEE IN RELATION TO THE BALANCE COST OF LAND AT RS.40,04,61 7/- WAS ADDED TO THE TOTAL INCOME. IN APPEAL THE ASSESSEE SUBMITTED THAT IT WA S FOLLOWING PERCENTAGE COMPLETION METHOD AND SINCE ONLY 25% OF WORK WAS CO MPLETED, ONLY PROPORTIONATE 25% COST OF LAND WAS TAKEN. THE CIT( A) WAS SATISFIED BY THE EXPLANATION GIVEN. IT WAS OBSERVED BY HIM THAT ONL Y 25% OF WORK WAS COMPLETE AND THEREFORE, ONLY PROPORTIONATE COST HAD TO BE TAKEN. ACCORDINGLY, HE DELETED THE ADDITION MADE, AGGRIEVE D, BY WHICH REVENUE IS IN APPEAL. 2.1 WE HAVE HEARD BOTH PARTIES AND PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING COM PUTATION OF PROFIT FROM PARTIAL COMPLETION OF PROJECT. THE ASSESSEE WAS EXECUTING A BUILDING CONSTRUCTION PROJECT. THERE IS NO DISPUTE THAT THE ASSESSEE WAS FOLLOWING PARTIAL COMPLETION METHOD AND THAT DURING THE YEAR ONLY 25% OF THE WORK WAS COMPLETED. COST OF THE LAND HAS TO BE SPREAD O VER THE ENTIRE CONSTRUCTED AREA OF THE PROJECT FOR GIVING A PROPER VALUATION COST OF ITA NO.886/M/10 A.Y:06-07 3 CONSTRUCTION PER UNIT AREA. BUT IN THIS CASE SINCE ONLY 25% OF THE WORK WAS COMPLETED, ONLY PROPORTIONATE 25% OF COST OF LAND H AS TO BE ADDED FOR ARRIVING AT CORRECT FIGURE OF PROFIT FOR THE YEAR. WE, THEREFORE, SEE NO INFIRMITY IN THE ORDER OF CIT(A) IN DELETING THE AD DITION MADE TOWARDS COST OF LAND. ORDER OF CIT(A) IS ACCORDINGLY UPHELD. 3. THE SECOND DISPUTE IS REGARDING ESTIMATED DISALL OWANCE OUT OF TELEPHONE AND MOTOR CAR EXPENSES. THE AO DISALLOWE D 20% OF TELEPHONE CHARGES AND 20% MOTOR CAR EXPENSES INCLUDING DEPREC IATION ON ACCOUNT OF PERSONAL USE OF TELEPHONE AND MOTOR CARS. IN APPEA L ASSESSEE SUBMITTED THAT THE PARTNERS AND STAFF WERE REGULARLY VISITING THE SITE IN THE AREA TO SUPERVISE AND CONTROL CONSTRUCTION ACTIVITY AND THE REFORE, ENTIRE EXPENSES ON ACCOUNT OF TELEPHONE AND MOTOR CAR WERE FOR THE PUR POSE OF BUSINESS. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD ALREADY PAID F RINGE BENEFIT TAX IN RELATION TO TELEPHONE AND MOTOR CAR EXPENSES INCLUD ING DEPRECIATION AND THEREFORE, NO DISALLOWANCE SHOULD BE MADE WHILE COM PUTING TOTAL INCOME FOR THIS YEAR. THE CIT(A) ACCEPTED THE CONTENTION RAIS ED AND DIRECTED THE AO TO DELETE THE ADDITION, AGGRIEVED BY WHICH REVENUE IS IN APPEAL. 3.1 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE REC ORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS RE GARDING ADDITION ON ACCOUNT OF ESTIMATED DISALLOWANCE OF TELEPHONE AND MOTOR CA R EXPENSES INCLUDING DEPRECIATION FOR PERSONAL USES. THE DISALLOWANCE H AS BEEN MADE @ 20%. THE CASE OF THE ASSESSEE IS THAT 25% OF SUCH EXPENS ES HAVE ALREADY BEEN CONSIDERED AS FRINGE BENEFITS AND TAX HAS BEEN LEVI ED AS FRINGE BENEFIT TAX. ITA NO.886/M/10 A.Y:06-07 4 ON CAREFUL CONSIDERATION WE FIND THAT THE CLAIM OF THE ASSESSEE IS REASONABLE. IT IS LIKE PERSONAL BENEFITS ENJOYED BY EMPLOYEES/P ARTNERS BEING TAXED AS PERQUISITE IN THEIR HANDS. IN CASE PERSONAL USE OF CARS/TELEPHONES ARE TAXED AS PERQUISITE IN THE HANDS OF THE USER, NO DISALLOW ANCE CAN BE MADE IN CASE OF THE ASSESSEE. IN THIS CASE, SUCH BENEFITS ENJOY ED BY EMPLOYEES/PARTNERS HAVE BEEN SUBJECTED TO FRINGE BENEFIT TAX WHICH MEA NS ACCEPTANCE OF THE ASSESSEE OF SUCH BENEFITS BEING GIVEN FOR THE PURPO SE OF BUSINESS AND, THEREFORE, ANY EXPENDITURE ON ACCOUNT OF SUCH BENEF IT HAS TO BE ALLOWED AS DEDUCTION WHILE COMPUTING INCOME OF THE ASSESSEE. WE THUS AGREE WITH THE CIT(A) THAT NO DISALLOWANCE IS REQUIRED IN CASE OF THE CIT(A). ACCORDINGLY THE ORDER OF CIT(A) IS CONFIRMED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 29.7.2011. SD/- SD/- (R.V. EASWAR) (RAJENDRA SINGH ) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 29.7.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.