ACIT, Circle-11(1), Hyderabad V. M/s. Godavari Developers, Hyderabad

ITA 918/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66422 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KARLA
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Non-deduction of tax
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 918/HYD/2011 ASSESSMENT YEAR: 2007-08 ASST. COMMISSIONER OF INCOME TAX, ... APPELLANT CIRCLE 11(1), HYDERABAD VS. M/S GODAVARI DEVELOPERS , RESPONDENT HYDERABAD (PAN/GIR NO. AAPFFG5872K) APPELLANT BY : SMT. VIDISHA KARLA RESPONDENT BY : SHRI K.A. SAI PRASAD DATE OF HEARING : 17/10/2012 DATE OF PRONOUNCEMENT : 31/10/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDERS OF CIT(A)-VI, HYDERABAD DATED 31/01/2011 FO R THE ASSESSMENT YEAR 2007-08. 2. THE APPELLANT IS A FIRM AND IS CONSTITUTED VIDE PARTNERSHIP DEED DATED 31.07.2004 AND IS ENGAGED IN THE BUSINES S OF DEVELOPMENT AND SALE OF PLOTS. FOR THE ASST. YEAR 2 007-08 THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INC OME OF RS.L,09,870/-. THE CASE WAS SELECTED FOR SCRUTINY A ND NOTICES U/S 143(2) WERE ISSUED AND SERVED UPON THE APPELLANT. T HE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143(3) OF THE IT ACT VIDE ORDER DATED 24.12.2009. WHILE COMPUTING THE TOTAL I NCOME, THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.44,01, 500/- BEING 2 918/HYD/2011 M/S GODAVARI DEVELOPERS EXPENDITURE INCURRED ON LAND DEVELOPMENT ON THE GRO UND THAT THE APPELLANT FAILED TO DEDUCT TAX AS REQUIRED U/S 194C AND ADDED BACK TO THE TOTAL INCOME OF THE APPELLANT AND OPINE D THAT PROVISIONS OF SECTION 40(A)(IA) ARE ATTRACTED. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 4. BEFORE THE CIT(A), THE LEARNED AR OF THE ASSESSE E FILED COPIES OF COMPUTATION OF TOTAL INCOME, PROFIT AND L OSS ACCOUNT AND BALANCE SHEET AS ON 31.03.2007, WHICH WERE SUBMITTE D BEFORE THE ASSESSING OFFICER DURING THE COURSE OF SCRUTINY ASS ESSMENT PROCEEDINGS AND SUBMITTED THAT FROM PROFIT AND LOSS ACCOUNT THE ASSESSEE CREDITED THE PROFIT AND LOSS ACCOUNT WITH CONTRACT RECEIPTS OF RS.10 LAKHS (SCHEDULE F) & THE ASSESSE E CLAIMED CONSTRUCTION EXPENDITURE OF RS.8,90,130/- (SCHEDULE G). HE, THEREFORE, SUBMITTED THAT FROM THE SCHEDULES IT IS CLEAR THAT THE ASSESSEE CLAIMED EXPENDITURE TOWARDS MATERIAL, SALA RIES ETC INCURRED IN THE PROCESS OF EXECUTION OF CONSTRUCTIO N WORK, HOWEVER, THE ASSESSING OFFICER ADDED THE FOLLOWING AMOUNTS OBSERVING THAT THE EXPENDITURES WERE NOT ALLOWABLE IN VIEW OF THE ASSESSEE'S FAILURE TO DEDUCT TAX U/S.194C OF THE IT ACT. A. V.PARVATH REDDY EARTH FILING & LEVELING RS.36, 62,000 B. CH.LAXMANA RAO EARTH FILING & LEVELING RS. 4, 35,000 C.RVSS EARTH MOVERS TRACTOR DOZZER HIRE CHARGES RS. 1,70,400 D. VENKATESH (JCB) TRACTOR DOZZER HIRE CHARGES RS . 1,34,100 --------------- RS. 44,01,500 ========= THUS, THE ASSESSING OFFICER DISALLOWED THE ABOVE AM OUNTS BY INVOKING SECTION 40(A)(IA) THOUGH THE ASSESSEE DID NOT CLAIM THE AMOUNTS AS EXPENDITURES BY DEBITING TO THE PROFIT & LOSS ACCOUNT. 3 918/HYD/2011 M/S GODAVARI DEVELOPERS 5. THE LEARNED AR OF THE ASSESSEE BY REFERRING SECT IONS 29 & SECTION 40(A(IA) OF THE ACT, SUBMITTED THAT IT IS C LEAR THAT THE AMOUNTS (EXPENDITURES) CLAIMED AS DEDUCTION SHOULD NOT BE ALLOWED IF TDS WAS NOT MADE WHEREVER THE RELEVANT P ROVISIONS APPLY. THUS, THE POINT THAT REQUIRES TO BE NOTED IS THAT AT THE FIRST INSTANCE THE ASSESSEE SHOULD CLAIM THE RELEVANT AMO UNTS AS EXPENDITURES BY DEBITING TO THE PROFIT AND LOSS ACC OUNT. THEN, IF THE DEDUCT THE TAX IN RESPECT OF SUCH ITEMS OF EXPE NDITURES DEBITED TO PROFIT AND LOSS ACCOUNT AS PER TDS PROVI SIONS, THE EXPENDITURE SHOULD NOT BE ALLOWED AS A DEDUCTION. H E POINTED OUT THAT FROM THE PROFIT AND LOSS ACCOUNT THE ASSESSEE DID NOT CLAIM THE ABOVE MENTIONED AMOUNTS AS EXPENDITURES AND DID NOT DEBIT THE SAME TO THE PROFIT AND LOSS ACCOUNT. THE LEARNE D AR OF THE ASSESSEE CONTENDED THAT WHEN THE ASSESSEE FIRM ITSE LF DID NOT CLAIM THE EXPENDITURE/ PAYMENTS BY DEBITING TO PROF IT AND LOSS ACCOUNT THE QUESTION OF DISALLOWANCE OF THOSE AMOUN TS BY INVOKING THE PROVISIONS OF SECTION 40A(IA) DOES NOT ARISE. 6. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE INCUR RED THE ABOVE MENTIONED EXPENDITURE IN THE PROCESS OF LAND DEVELOPMENT MAKING THE LAND A SALABLE COMMODITY. AS CAN BE SEEN FROM THE DETAILS OF SCHEDULE E TO BALANCE SHEET AS ON 31.3.2 007 THE ASSESSEE REFLECTED THE EXPENDITURE INCURRED TOWARDS LAND DEVELOPMENT DURING THE ACCOUNTING YEAR 2006-07 AS C URRENT ASSET. LAND DEVELOPMENT EXPENDITURE AS ON 31.03.2007 RS.8 0,21,027 LAND DEVELOPMENT EXPENDITURE AS ON 31.03.2006 RS.2 8,07,990 DIFFERENCE RS. 52,13,037 ========= 4 918/HYD/2011 M/S GODAVARI DEVELOPERS IT WAS SUBMITTED THAT THE AMOUNT OF RS.52,13,037/- REFLECTED AS CURRENT ASSETS IN THE BALANCE SHEET (S CHEDULE E) INCLUDES THE ABOVE AMOUNT OF RS,44,01,500/- FROM TH IS IT IS CLEAR, THE ASSESSEE FIRM DID NOT QUANTIFY THE LIABILITY DU E TO ABOVE MENTIONED FOUR PERSONS AND ALSO THE ASSESSEE DID NO T DEBIT THE EXPENDITURE TO THE PROFIT AND LOSS ACCOUNT. 7. FURTHER, IT WAS SUBMITTED THAT DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DID NO T ALLOW AN OPPORTUNITY TO THE ASSESSEE WITH REGARD TO HIS PROP OSITION TO DISALLOW THE ABOVE MENTIONED AMOUNTS BY INVOKING TH E PROVISIONS OF SECTION 40A(IA) OF THE IT ACT. IT WAS CONTENDED THAT WITHOUT OBTAINING ANY EXPLANATION FROM THE ASSESSEE, THE AS SESSING OFFICER DISALLOWED THE ABOVE AMOUNTS BY INVOKING P ROVISIONS OF SECTION 40A(IA). 8. IT WAS FURTHER SUBMITTED THAT THE GROSS RECEIPTS CREDITED TO PROFIT AND LOSS ACCOUNT AMOUNTED TO RS.L0 LAKHS. BE CAUSE OF DISALLOWANCE OF EXPENDITURE OF RS.44,01,500/- BY TH E ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40A(I A) OF THE IT ACT IT RESULTED IN COMPUTATION OF THE INCOME AT RS.45,1 1,370/-WHICH IS IMPROPER AND NOT SUSTAINABLE. IT WAS POINTED OUT THAT THERE WAS NO DISCUSSION IN THE ASSESSMENT ORDER AS TO HOW THE ASSESSING OFFICER WAS CONVINCED TO COMPUTE THE INCOME AT RS.4 5,11,370/- WHEN THE GROSS RECEIPTS ITSELF AMOUNTED TO RS.L0 LA KHS. HE, THEREFORE, SUBMITTED THAT THE COMPUTATION MADE BY T HE ASSESSING OFFICER IS ILLOGICAL AND WITHOUT ANY BASIS. 9. IT WAS ALSO SUBMITTED THAT THERE IS NO CONTRACT UAL OBLIGATION EXISTED BETWEEN THE ASSESSEE FIRM AND THE ABOVE MEN TIONED FOUR PERSONS IN RESPECT OF WHOM THE ASSESSING OFFICER DI SALLOWED 5 918/HYD/2011 M/S GODAVARI DEVELOPERS AMOUNTS. THE LEARNED AR OF THE ASSESSEE FINALLY SUB MITTED THAT WHEN THERE IS NO CONTRACTUAL OBLIGATION THE QUESTIO N OF DEDUCTION OF TAX AS ENVISAGED UJS.194C DOES NOT ARISE AND WIT HOUT CALLING FOR ANY DETAILS OR EXAMINING THE ISSUE IN DETAIL, I T WAS NOT PROPER FOR THE ASSESSING OFFICER MAKING DISALLOWANCE OF R S. 44,01,500/- BY INVOKING PROVISIONS OF SECTION 40A(IA). 10. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) RELYING ON THE DECISION OF THE HONBLE ITAT, MUMBAI BENCH IN THE CASE OF ITO VS. SAVALA ASSOCIATES HELD THAT THE AO IS EMPOWERED TO REWORK OUT THE WORK IN PROGRESS DECLAR ED BY THE ASSESSEE BUT DISALLOWING ANY EXPENDITURE BY INVOKIN G PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IS NOT WARRANTED. H E, THEREFORE DELETED THE ADDITION OF RS. 44,01,500/- MADE BY THE AO BY HOLDING THAT IN THE ABSENCE OF ANY CLAIM OF THE EXP ENDITURE MADE BY THE ASSESSEE, BY DEBITING THE PROFIT & LOSS ACCO UNT, SUCH AN ACTION FROM THE AO SEEMS NON-APPLICATION OF MIND AN D SUCH A DISALLOWANCE WOULD NOT BE SUSTAINED. 11. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF A PPEAL:- A) THE LEARNED CIT(A) ERRED BOTH ON FACTS AND IN LA W. B) THE CIT(A) ERRED IN DELETING THE ADDITION OF RS. 44,01,500/- MADE U/S 40(A)(IA) OF THE ACT, 1961. C) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE IS IN REAL ESTATE BUSINESS AND THE EXPENDITURE IN Q UESTION IS REVENUE IN NATURE. D) THE LEARNED CIT(A) ERRED IN ARRIVING TO A CONCLU SION THAT THE ASSESSEE IS FOLLOWING PROJECT COMPLETION METHOD . E) THE LEARNED CIT(A) ERRED IN CONCLUDING THAT NON- REJECTION OF BOOKS OF ACCOUNT AMOUNTS TO ACCEPTANCE OF THE SY STEM OF ACCOUNTING, HENCE, DISALLOWANCE U/S 40(A)(IA) IS NO T CORRECT. F) THE CIT(A) OUGHT TO HAVE AFFORDED AN OPPORTUNITY TO THE AO FOR REBUTTAL. G) ANY OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING. 6 918/HYD/2011 M/S GODAVARI DEVELOPERS 12. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SHRI K.A. SAI PRASAD REITERATED THE SUBMISSIONS MADE BEFORE THE C IT(A) AND HE RELIED ON THE DECISION OF THE ITAT, HYDERABAD BENCH IN THE CASE OF M/S NARNE CONSTRUCTIONS (P) LTD. IN ITA NOS. 1462 & 1463/HYD/2011 FOR AYS. 2004-05 ORDER DATED 25/01/20 12, WHEREIN IT HAS BEEN HELD AS FOLLOWS:- 10. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. T HE CONTENTION OF THE ASSESSEE IS THAT THIS ITEM HAS NO T BEEN DEBITED TO PROFIT & LOSS A/C AND THIS HAS BEEN SHOW N IN THE BALANCE SHEET AND IT CANNOT BE CONSIDERED FOR ALLOW ANCE OR DISALLOWANCES. WE FIND FORCE IN THE CONTENTION OF T HE ASSESSEES COUNSEL THAT UNLESS THE ASSESSEE CLAIMS- THIS ITEM AS EXPENDITURE, THE AO CANNOT ALLOW OR DISALLOW THE SAME. IN THAT CIRCUMSTANCES, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO EXAMINE WHETHER THIS IS AN EXPENDITURE CLAIME D BY THE ASSESSEE IN THE PROFIT & LOSS A/C OR SHOWN AS AN IT EM IN THE BALANCE SHEET. IN THE EVENT, IF IT IS CLAIMED AS AN EXPENDITURE, THE AO COULD DISTURB THE SAME AND DISA LLOW AN EXPENDITURE CLAIMED IN THE P&L A/C TO THE EXTENT OF 10%, WHICH, IN OUR OPINION, IS REASONABLE. ON THE OTHER HAND, IF IT IS BALANCE-SHEET ITEM, THE AO IS PRECLUDED FROM DOI NG SO. 13. REFERRING TO THE SAID CASE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO DOUBT REGARDING THE NON- CLAIMER OF THE EXPENDITURE BY THE ASSESSEE IN THE P &L ACCOUNT IN THE PRESENT CASE AND, THEREFORE, THE MATTER SHOULD NOT BE REMITTED TO THE FILE OF THE AO FOR VERIFICATION AS REQUESTED BY THE LEARNED DR. 14. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD AS WELL AS GONE THROUGH THE ORDE RS OF THE AUTHORITIES BELOW. WE FIND MERIT IN THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN THE PRESENT CASE I T CAN BE SEEN FROM THE P&L ACCOUNT, WHICH WAS FILED BY THE ASSESS EE AT THE TIME 7 918/HYD/2011 M/S GODAVARI DEVELOPERS OF HEARING THAT IT IS NOT CLAIMED THE ABOVE AMOUNT OF RS. 44,01,500/- AS EXPENDITURE AND DID NOT DEBIT THE SA ME TO THE P&L A/C. WHEN THE ASSESSEE DID NOT CLAIM THE SAID EXPENDITURE/PAYMENTS BY DEBITING P&L A/C, THE QUEST ION OF DISALLOWING THIS AMOUNT BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) DOES NOT ARISE. 15. IN THE CASE OF ITO VS. SAVALA ASSOCIATES, ON WH ICH RELIANCE PLACED BY THE CIT(A), THE ITAT MUMBAI BENCH HELD AS UNDER:- IN PRINCIPLE, ONE AGREES WITH THE ABOVE VIEW OF REV ENUE THAT IN CASE OF COMPLETED CONTRACT METHOD THE AO IS EMPOWERED TO EXAMINE THE EXPENDITURES INCURRED DURI NG THE YEAR WHICH INCREASES THE OPENING WORK-IN-PROGRESS O R ADDITION IN WORK-IN-PROGRESS. BUT ONE DOES NOT AGRE E WITH THE VIEW OF REVENUE THAT ADDITION IS TO BE MADE IN TOTAL INCOME, IF SOME EXPENDITURE WERE FOUND NOT ALLOWABL E. THE CORRECT PROCEDURE IN COMPLETED CONTRACT METHOD IS THAT INSTEAD OF MAKING ADDITION, THE AO SHOULD CORRECT T HE AMOUNT OF WORK-IN-PROGRESS BY REDUCING OR ENHANCING WORK- IN-PROGRESS AS THE CASE MAY BE. SUCH CORRECTED WIP WILL BE FINALLY CONSIDERED IN P&L A/C /CONTRACT ACCOUNT FOR THE YEAR IN WHICH WORK IS COMPLETED. THE RESULT OF CALCULATI ON OF CORRECT PROFIT IN CASE OF COMPLETED CONTRACT METHO D COULD BE ATTAINED BY THIS PROCEDURE. IN THE CASE UNDER CONSIDERATION, THE AO MADE ADDITION IN ALL THE PROJ ECTS INCLUDING INCOMPLETE PROJECTS, WHICH IS NOT WARRANT ED. 16. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE ADDITION OF RS. 44,01,500/- MADE BY THE AO INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THUS, THE SAME IS HEREBY UPHE LD DISMISSING THE GROUND OF THE REVENUE. 8 918/HYD/2011 M/S GODAVARI DEVELOPERS 17. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2012. SD/- SD/- ( CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 31 ST OCTOBER, 2012. KV COPY TO:- 1) ACIT, CIRCLE 11(1), D-BLOCK, 5 TH FLOOR, IT TOWERS, AC GUARDS, HYDERABAD. 2) M/S GODAVARI DEVELOPERS, OPP. LANE TO SHATAVAHANA HIGH SCHOOL, SATAVAHANA NAGAR COLONY, KUKATPALLY, HYDERABAD. 3) THE CIT (A)-VI, HYDERABAD 4) CIT-V, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D.