DY.COMMISSIONER OF INCOME TAX, CIRCLE-3(3),, AHMEDABAD vs. M/S. ANSHUL ASSOCIATES,, AHMEDABAD

This appeal by the Revenue is directed against the order of the Ld. CIT(A)-3, Ahmedabad dated 31.08.2015 pertaining to A.Y. 2011-12.

Ground nos. 4 to 10 are extension of the grievances raised vide ground nos. 1, 2 & 3.

Representatives of both sides were heard at length. Case record carefully perused and with the assistance of the ld. counsel, we have carefully gone through the documentary evidences brought on record in the form of a paper book in the light of Rule 18(6) of the ITAT Rules.

Briefly stated the facts of the case are that the assessee is developer of project and is also a contractor. During the year under consideration, the assessee entered into a development agreement dated 18.01.2008 with M/s. Goyal & co. (Const) Pvt. Ltd. wherein the roles of both the parties were defined. The ownership of the land was vested with Goyal & Co. and the assessee was concerned with the execution of activities as defined in the joint development agreement. The assessee was mainly engaged in RCC works, Brick Work and Plaster Work.

During the course of the scrutiny assessment proceedings, the A.O. noticed that the assessee has incurred and claimed expenses of Rs. 22,83,441/- being Wooden Material Expenses and Rs. 8,00,000/- being Wooden Labour Expenses. The A.O. was of the opinion that the assessee has executed these

After considering the detailed submissions of the assessee, the A.O. still was under the opinion that the assessee has done work which was not allotted to it. The A.O. accordingly disallowed the total expenditure of Rs. 30.83 lacs. Proceeding further, the A.O. noticed that the assessee has claimed expenditure of Rs. 2,91,375/- being incurred on Tube Well. On going through the bill, the A.O. noticed that the said expenditure was purchased of Solar Water Heating Equipments. The A.O. was of the opinion that the expenses on Bore Well, Tube Well has already been claimed separately by the assessee. The A.O. once again formed a belief that the said expenditure was incurred by the assessee beyond the scope of work allotted to it in the development agreement. The A.O. disallowed Rs. 2,91,375/-.

On further probe, the A.O. found that the assessee has debited interest expenses of Rs. 25,89,150/- on the loan facility availed from the Punjab National Bank. The A.O. noticed that the sale receipts were first received by Goyal & Co. and later on transferred to the assessee. The A.O. was of the opinion that once it was agreed with Goyal & Co. that the units sold by respective parties, the sale consideration of the same shall be collected by the respective parties. The A.O. was of the opinion that since the sale receipts were first collected by Goyal & Co. and thereafter transferred to the assessee, the time lag between the two transactions have resulted into the payment of interest on loan facilities which the assessee could have easily avoided had the

Assessee assailed the assessment order before the ld. CIT(A) and vehemently contended that the assessee has done the work jointly with Goyal & Co. and therefore it cannot be said that the assessee has incurred expenditure on the work done by it which was beyond the scope of the development agreement.

After considering the facts and the submissions, the ld. CIT(A) was convinced with the claim of expenditure and on finding that both the assessee and Goyal & Co. are taxed at the maximum rate of tax, there would be no revenue leakage if the expenditure are claimed by either of the two. Drawing support from the judgment of the Hon’ble Supreme Court in the case of Excel Industries Ltd. 219 Taxmann.com 379 and Glaxo Smithkline Asia (P) Ltd. 195 Taxmann.com 35, the ld. CIT(A) directed the A.O. to delete the impugned additions.

There is no dispute that the assessee has in fact incurred the expenditures which have been disallowed by the A.O. It is equally true that nowhere the A.O. has mentioned that the expenditures were not related to the business of the assessee. It is also true that quantitative specification of works allotted to assessee has not been mentioned in the said agreement but at the same time, the A.O. has accepted the said agreement without questioning its legality or enforceability. We find that the sale consideration was first received by Goyal & Co. and thereafter after the gap of 4 to 6 days, the same was transferred to the account of the assessee. On such fact, it cannot be said that the assessee has deliberately passed on some favour to Goyal & Co. Therefore, it cannot be said that by doing so, the assessee has unnecessarily incurred interest

On a conspectus reading of the assessment order and the order of the First Appellate Authority vis-à-vis the facts in issues relating to the impugned expenditures, we do not find any merit in the disallowances made by the A.O. and therefore decline to interfere with the findings of the ld. CIT(A). All the grounds taken together are accordingly dismissed.