THE ACIT, CIRCLE - 2(1), VIJAYAWADA vs. M/S AGRI GOLD CONSTRUCTION PVT. LTD., VIJAYAWADA

आदेश / O R D E R

PER D.S. SUNDER SINGH, Accountant Member:

This appeal filed by the revenue is directed against order of

the Commissioner of Income Tax (Appeals) {CIT(A)}, Vijayawada vide

Appeal No.602/CIT(A)/VJA/13-14 dated 27.6.2014 for the assessment

year 2011-12.

2. The assessee is a civil contractor filed its return of income

declaring total income of ` 3,73,54,496/-. The case was selected for

scrutiny and during the course of assessment proceedings, the A.O.

found that some vouchers in respect of gravel, sand purchase, metal

chip purchases and labour charges were incurred on self-made vouchers

and some of them were not maintained properly. The assessee

explained that the expenditure was incurred at various places at the field

stations and it is not possible to maintain the vouchers properly and

some of the vouchers made were misplaced. The A.O., considering the

facts of the case held that assessee failed to substantiate expenses,

accordingly estimated the income @ 12.5% on construction activity and

8% on sale of plots clear of all the expenditure and depreciation.

Secondly, the A.O. treated the interest income of ` 7,43,76,762/- as

income from other sources and assessed separately. Thirdly, the A.O.

found during the course of scrutiny of balance sheet that there was a

decrease in the current liabilities to the extent of `155.96 crores with

regard to the venture advances transferred to the sister company of the

assessee M/s. Agri Gold Farm Estates India Pvt. Ltd. The assessee has

transferred the liability along with collected amount on the

corresponding expenses. The assessing officer treated the transferred

amount of venture advances as deemed sales and estimated the income 2

@ 8% on `155.96 crores, which worked out to ` 12,47,68,000/-.

Similarly, the A.O. found that the assessee company has refunded `

184.08 crores to the customers who have opted out or due to breach of

contract from ventures. The A.O. treated the refund of amounts to the

customers on account of breach of contract as deemed sales and

estimated the income @ 8% on ` 184.08 crores and computed the total

income at ` 40,35,89,103/-.

before the CIT(A) and the Ld. CIT(A) scaled down the estimation of

income from 12.5% to 8% in respect of construction contracts and from

8% to 5% on sale of plots and also allowed the depreciation. While

scaling down the estimation of income, the Ld. CIT(A) followed earlier

years assessments made by the A.O. in the assessee’s own case. In

respect to the interest income, the CIT(A) observed that the assessee

company has included the interest earned from the deposits of ideal

business funds in the business income and the treatment of including

interest income in the business income has been followed consistently

for the past so many years. Therefore, the Ld. CIT(A) found that there

is no reason to disturb the consistent method of accounting followed by

the assessee and relied on the decision of this Tribunal in the assessee’s

own case for the assessment year 2010-11 and held that the interest 3

income is required to be assessed as business income and not as income

from other sources. Accordingly, deleted the addition made by the A.O.

With regard to the estimation of income on deemed sales of ` 4.

155.96 crores and ` 185.05 crores, the CIT(A) observed that the

assessee had transferred an amount of ` 155.96 crores to its sister

company i.e. M/s. Agri Gold Farms India Pvt. Ltd. representing the

instalments collected on its account after deducting the related

marketing expenses as evidenced by the ledger extract produced by the

assessee. Accordingly, held that it is not justified to hold the transferred

amount as such and estimating the income on such amount. Similarly,

in the case of refund of advances amounting ` 184.08 crores, the CIT(A)

observed that the assessee has refunded the amounts received from the

customers as advances for breach of contract and there was a decrease

in the liabilities to that extent as well as the assets. Therefore, CIT(A)

held that there was no element of sales involved in refund of advances,

accordingly, deleted the addition made by the A.O. with regard to the

estimated income on deemed sales of refunds.

before this Tribunal and raised the following grounds of appeal:

2.On the facts and circumstances briefly submitted in the statement of facts, the decision of the learned CIT(A) to assess the income from construction work © 8% & on the sale of plots © S% as against @ 12.5% & 8% as adopted by the AO, respectively , is neither based on any material nor on valid base and hence her decision is unjustified 3. On the facts and circumstances of the case, the Ld.CIT(A) is unjustified in holding that the principle of consistency is to be adopted in this case since the facts and circumstances vary from year to year and this issue is being contested before superior appellate authorities! court. 4. The ld.CIT(A), on the facts and circumstances briefly submitted in the statement of facts , has not taken relevant material factors for determining the rate of profit on each of the above sources. 5. The Id. CIT(A) has wrongly applied the ratio of a decision rendered by the Hon'ble ITAT on issues covered u/s.263 which is not justified on the facts and circumstances of this case.

6. Ground Nos.1, 10 & 11 are general in nature, which does not

require specific adjudication.

High Court against the order of the ITAT, which also does not require

specific adjudication.

discussed above, the A.O. estimated the income @ 12.5% on

construction contracts and 8% on sale of plots clear of depreciation and

all other expenses which is partly confirmed by the CIT(A).

on record and gone through the orders of the authorities below. The

revenue’s case is that the A.O. had considered all the facts and

estimated the income @ 12.5% on construction contracts and 8% on

sale of plots, hence the same required to be upheld. The assessee’s

case is that the assessee has maintained the books of accounts, which

was duly audited and supported by vouchers and bills, hence there is no

case for resorting for the estimation of income. It is observed that the

A.O. has noticed the defects such as expenses under the heads gravel,

sand purchase, metal chip purchases and labour charges, etc. were

incurred on self-made vouchers or there were no bills and vouchers in

some cases. The quantum of amount of the expenditure incurred under 6

the relevant heads and the quantum of expenditure for which the

expenditure was incurred on self-made vouchers and the amount of

expenditure for which no details, was made available and was not

quantified by the A.O. In the earlier years the A.O. has accepted the

estimation of income @ 8% on construction contracts and 5% on sale of

plots, and the same is evidenced by the Ld. CIT(A)’s order. The A.O.

has not brought on record any major changes in the expenditure

incurred by the assessee and any suspicious nature of expenditure, or

inflation of expenditure. The assessee has maintained the regular books

of accounts and the books of accounts were duly audited by the

qualified Chartered Accountants. Though rule of resjudicata does not

apply to the Income Tax proceedings, the rule of consistency does apply

to the income tax proceedings. This view is supported by the Hon’ble

Supreme Court judgement in the case of Kanmudin Narayan Dalal

(2001) 117 Taxman 375 (SC) and Satish Panalal Shah 117 Taxman 373

(SC). From the perusal of the assessment order, it is observed that the

A.O. did not reject the books of accounts before resorting for estimation

of income. In the absence of any evidence brought on record to hold

that the expenditure claimed by the assessee is unreasonably high and

quantification of unverifiable nature of expenditure and fresh facts to

resort higher estimation of income, we do not see any reason to 7

interfere with the order of the Ld. CIT(A) and we hold that the Ld.

CIT(A) has rightly applied the estimation of income @ 8% on contract

receipts and 5% on sale of plots. Accordingly, the order of the Ld.

CIT(A) is upheld and the revenue’s appeal on these grounds are

dismissed.

the head Other sources. During the assessment year, the assessee has

received the interest of ` 7,43,76,762/- and offered it under the

business income. The said practice of offering the interest income

under the head business income was followed by the assessee for the

last so many years, which was accepted by the department. The

assessee has placed the surplus funds received from the customers as

deposits in banks for temporary period and earning interest income.

Hence, the interest income earned by the assessee is inter-related to the

business activity carried on by the assessee. Accordingly, the assessee

has admitted the same as business income. The issue of assessment of

interest under the head business income was considered by this Tribunal

in the assessee’s own case for the assessment year 2010-11 in ITA

No.452/Vizag/2012 and held that the interest income on deposits made

out of surplus funds from the business receipt for temporary periods is

assessable under the income from business. The Hon’ble ITAT while 8 adjudicating the issue relied on the decision of Hon’ble Bombay High

Court in the case of CIT Vs. LOK holdings and Hon’ble Kolkata High

Court in the case of Eveready Industries Limited Vs. CIT and Anr (2010)

323 ITR 312. For ready reference, we extract the relevant paragraph of

the Hon’ble ITAT order, which reads as under:

“6.6 Be that as it may, the Hon’ble Bombay High Court in the case of LOK Holdings, has held as follows:- “Interest earned by assessee a property developer, by making temporary deposits of surplus money out of advances received by it from intending purchases is business income and cannot be assessed as income from other sources.”

6.7 The Hon’ble Kolkata High Court in the case of Eveready Industries India Ltd. (supra) has held as follows:

“AO was right in treating the interest income earned by the assessee by investing surplus fund of the business in short term deposits as business income in accordance with sub r (1) of r 8 of IT rules.”

6.8 Thus, the issue whether interest income on deposits made out of surplus money from advance raised for purchase is assessable under the head “income from business” or not has been adjudicated in favour of the assessee by those two High Courts. Hence the view taken by the Assessing Officer is a possible view. Under the circumstances, the learned CIT cannot substitute the possible view of the Assessing Officer with his own view in an order passed u/s 263 of the Act as held by various High Courts as well as the Hon’ble Supreme Court. Thus, we uphold the contentions of the assessee and cancel the order OF the CIT.”

order of the Hon’ble Bombay High Court and Hon’ble Kolkata High Court,

we hold that the interest income received on deposits required to be

assessed under the business income but not as separate source of

income. Hence, we uphold the order of the Ld. CIT(A) and dismiss the

appeal of the revenue on this ground. 9

12. Ground No.9 is related to the estimation of income on deemed

sales. The A.O. estimated the deemed sales on transfer of ventures to

its group company amounting to ` 155.96 crores @ 8%. The CIT(A)

observed that the assessee had received advances for sale of plots from

the customers on behalf of its group company which is having lands and

allot the plots to the customers. In the process, the assessee had

transferred the advances so received from the customers to the group

company M/s. Agri Gold Farms Pvt. Ltd. representing instalments

collected on its behalf after deducting the marketing and collection

expenses so that group company to allot plots or flats to their respective

customers. The assessee has produced the ledger extract before the

CIT(A) and the Ld. CIT(A) after examining the details furnished by the

assessee concluded that there was no deemed sales and it is merely a

transfer entry without any profit element, accordingly, deleted the

addition. On careful verification of the submissions and the orders of

the lower authorities, we find that there was no sales element involved

and it is a simple transfer of the balances payable to the Agrigold Farms

and Estates Pvt. Ltd. and there was no case for estimation of income or

for treating the transfer of amounts as sales. The Ld. D.R. did not bring

any evidence during the appeal hearing to controvert the finding of the

Ld. CIT(A) or to substantiate the deemed sales. Therefore, we do not 10

find any reason to interefere with the orders of the Ld. CIT(A) and the

same is upheld.

The next issue in deemed sales is ` 184.08 crores relating to the 13.

refund of advances to the customers by the assessee. The assessee has

received the booking advances and instalments against the purchase of

property products and sale consideration. In case if the plots or flats

are not available for whatever reasons in the existing project layout or

complex, the assessee will allot similar plot or flat or project elsewhere

and deliver within the period the agreed period or refund the money to

the purchaser or prospective purchaser along with some suitable or

reasonable or permissible compensation. The relevant clauses were

included in the application form being issued by the assessee to its

customers. According to the terms and conditions, the assessee has

refunded the advances so received to the customers for breach of

contract. Since the amounts received were refunded to the customers

along with some suitable compensation, there is no case for any profit

element and the same cannot be treated as deemed sales. From

verification of the balance sheet, the CIT(A) observed the decrease in

liabilities as well as corresponding assets. The revenue has not brought

on record any evidence to show that there was a sale involved in the

transaction of refunds or advances and transfer of venture to the group 11 companies. Therefore, we hold that CIT(A) has rightly deleted the

addition relating to deemed sales. In addition to the above, once the

A.O. has resorted for estimation of income on sales as held by Hon’ble

A.P. High Court in the case of Indwell Constructions 232 ITR 776 (AP)

and in the case of Dabros Industrial Co. Pvt. Ltd., Hon’ble Kolkata High

Court judgement 108 ITR 424 (Cal) no other addition required to be

made. Therefore, we uphold the order of the CIT(A) and dismiss the

appeal of the revenue on these grounds.

The above order was pronounced in the open court on 10th Jan’18.

Sd/- Sd/- (वी. दुगा�राव) ( ड.एस. सु�दर "संह) (V. DURGA RAO) (D.S. SUNDER SINGH) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER #वशाखापटणम /Visakhapatnam: 'दनांक /Dated : 10.01.2018 VG/SPS आदेश क� ��त)ल#प अ*े#षत/Copy of the order forwarded to:- 1. अपीलाथ� / The Appellant – The ACIT, Circle-2(1), Vijayawada 2. ��याथ� / The Respondent – M/s. Agri Gold Constructions Pvt. Ltd., D.No.40-6-3, 1st Floor, Fortune Murali Park Lane, Revenue Colony, Vijayawada 3. आयकर आयु+त / The CIT, Vijayawada 4. आयकर आयु+त (अपील) / The CIT (A), Vijayawada 5. #वभागीय ��त�न.ध, आय कर अपील�य अ.धकरण, #वशाखापटणम / DR, ITAT, Visakhapatnam 6. गाड� फ़ाईल / Guard file आदेशानुसार / BY ORDER // True Copy // Sr. Private Secretary ITAT, VISAKHAPATNAM 12