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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI A.T.VARKEY, JM &DR. A.L.SAINI, AM
आदेश / O R D E R
Per Dr. A. L. Saini:
The captioned appeal filed by the Assessee, pertaining to assessment year 2011-12, is directed against an order passed by the learned Commissioner of Income Tax (Appeals)-2, Kolkata (in short the ld. ‘CIT(A)’], which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 ( in short the ‘Act’), dated 30.03.2014.
Grounds of appeal raised by the Assessee are as follows: 1. Under the facts and circumstances of the case the ld. Commissioner of Income Tax (Appeals)-2, Kolkata has erred in law as well as in fact in confirming the addition of Rs.55,67,210/- made by the Assessing Officer
Onkar Parivahan Finance Pvt. Ltd. ITA No.158/Kol/2017 Assessment Year:2011-12 (A.O.) at the time of determining the taxable income of the assessee by arbitrarily increasing the valuations of closing stocks of the unsold flats of the two Buildings in the following manner: a) For building no. 157, Rabindra Sarani, Kolkata-700007 by Rs. 32,77,329/- b) For Building no. 159, Rabindra Sarani, Kolkata-700007 by Rs. 22,89,881/-.
Under the facts and circumstances of the case the ld. Commissioner of Income Tax (Appeals)-2, Kolkata has erred in law as well as in fact in confirming the arbitrary disallowance & addition made by the Assessing Officer (A.O.) under section 40(a)(ia) of the Income Tax Act, 1961 (Act) the following expenditures incurred by the assessee on the basis of erroneous conclusion of non-deduction of tax at source. (TDS). a) Purchases of Rs. 1,89,96,589/- from Tirupati Mercantile & Trading Co. Ltd. b) Purchase of gift items of Rs. 5,95,598/- from G.V. Promoters on account of Business Promotion.
The appellant craves leave to amend, add, alter, modify and withdraw any or both of the above grounds at any time before disposal of the appeal.
Ground No. 1 raised by the assessee relates to valuation of closing stock of unsold flats of the two building, being flat building no. 157, Rabindra Sarani Kolkata, Rs. 32,77,329/- and building no. 159, Rabindra Sarani Kolkata Rs.22,89,881/-, both aggregating tothe tune of Rs.55,67,210/-( Rs. 32,77,329 + Rs. 22,89,881)
The brief facts qua the issue are that during the assessment proceedings, the assessing officer examined the books of accounts of the assessee relating to real estate division. The assessee was asked to furnish the details of flat sold. In response, the assessee furnished the details of flats sold which is reproduced below:
Onkar Parivahan Finance Pvt. Ltd. ITA No.158/Kol/2017 Assessment Year:2011-12
From the examination of details in respect of property at 157, Rabindra Sarani, it was observed by AO that the total area of the property is 18178.66 sq ft. Book value transferred from fixed asset is Rs. 25,08,797/- and cost of improvement is Rs. 37,29,731/-. The per square feet value of the property is thus Rs.343.18 [{37,29,731 +25,08,797}/18178.66]. Hence, the valuation of the closing stock of such property shall be Rs.54,81,840/- [343.18 x 15973.66]. Similarly, the valuation of closing stock of property at 159, Rabindra Sarani as per the submission of the assessee is arrived at Rs.1,92,51,361/- [{(23,52,484+1,74,25,186)/43402.65} X 42,247.65]. However, the valuation of closing stock for such properties are disclosed at Rs.22,04,490/- and Rs.1,69,61,480/- respectively. The assessee was, therefore, required to explain, why the valuation of closing stock of the properties at 157, Rabindra Sarani and 159, Rabindra Sarani together shall not be considered at Rs.2,47,33,180/- [54,81,819+1,92,51,361] as against Rs.1,91,65,970/- [22,04,490+1,69,61,480] disclosed by assessee.
In response, the assessee filed a written submission on this issue which is reproduced below: "Why the cost of improvement was not taken in the cost of property at 157, Rabindra Sarani and 159, Rabindra Sarani: - Property at 157 Rabindra Sarani and 159, Rabindra Sarani is too old building with tenants. Rent received from the tenants was too low since the tenants are old and rent collected from them is at old rate. We were not in the position to continue the building at old rent, since taxes and repairing expenses were higher than the Rent. We are offered the existing tenants to purchase the area in which they are residing after giving proper renovation to the existing area. Some of the tenants were ready to purchase the flat after renovation of flat. Whatever expenses we have incurred during the year Page | 3
Onkar Parivahan Finance Pvt. Ltd. ITA No.158/Kol/2017 Assessment Year:2011-12 is towards renovation of the area they have agreed to purchase and after renovation it is sold to the existing tenants only. Hence, the cost of improvement was not taken into the entire cost of building. Therefore, cost of the closing balance of the building was not effected with the cost of improvement. "
The assessing officer, examined the submission of the assessee and found to be inconsistent with the policy of valuation in respect of other properties held by the assessee. It was observed by AO that in the case of property at 19 Armenian Street, total area of the property is 12385.55 sq ft. valued at Rs.2,73,25,656/-. Expenses incurred on renovation of the property is Rs.30,21,528/- resulting into a per square feet value of the property at Rs. 2450.20 [{2,73,25,656 + 30,21,528}/12385.55]. Out of the said area, the assessee had sold 3307 sq. ft. leaving behind a closing stock 9078.55 sq. ft. Hence, the value of closing stock of 19 Armenian Street should be Rs.2,22,44,344/-[2450.20 x 9078.55] which is exactly the value disclosed by the assessee. Moreover, the AO noted that the submission of the assessee that renovation expenses in respect of property at 157, Rabindra Sarani and 159 Rabindra Sarani were borne exclusively in respect of the areas sold is not supported by any evidence and is bereft of any logic that a building could be renovated in pieces. Therefore, AO rejected the contention of the assessee and held that the value of closing stock in respect of property at 157 Rabindra Sarani & 159 Rabindra Sarani is considered at Rs.2,47,33,180/- as against Rs.1,91,65,970/-. Hence, the difference of Rs.55,67,210/- (Rs.2,47,33,180- Rs.1,91,65,970), short credited in the accounts of the assessee, was added back to the total income of the assessee.
Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the addition made by the Assessing Officer. Aggrieved, the assessee is in appeal before us.
Before us, ld Counsel for the assessee has reiterated the submissions made before the authorities below. On the other hand, the ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.
Onkar Parivahan Finance Pvt. Ltd. ITA No.158/Kol/2017 Assessment Year:2011-12 9. We have heard both the parties and perused the material available on record.We note that the assessee, Onkar Paribahan Finance Private Limited(OPFPL), has two old buildings which are situated at 157 Rabindra Sarani, Kolkata 700007 and 159 Rabindra Sarani, Kolkata 700007. The building have separate flats and the flats are tenanted. The tenants were very old and they were paying rent at very old rates which was too low. The rents paid were such low that the rental incomes from the flats were not even sufficient to cover the expenses incurred by the assessee towards property taxes and repairing charges of the said two buildings. Hence, the assessee decided to sell the said two buildings to the existing tenants. Some of the tenants agreed to purchase their flats on the condition that the flats have to be renovated by the landlord i.e.OPFPL. Accordingly, the assessee renovated the flats sold to the agreed tenants of the building No. 157 Rabindra Sarani, Kolkata 700 007 and flats sold to the agreed tenants of the building No. 159RabindraSarani, Kolkata 700007 by incurring expenditures of Rs. 37,29,731/- and,Rs. 23,52,484/- respectively.Following the prudent accounting principle assessee, ‘OPFPL’ has applied renovation expenses incurred of Rs. 37,29,731/- and Rs. 23,52,484/- respectively, for the sold flats of the two buildings to determine surpluses from the sale of flats of the said two buildings. Consequently, renovation expenses incurred of Rs.37,29,731/- and Rs.23,52,484/- for the flats sold of thebuilding No. 157 Rabindra Sarani, Kolkata 700007 and for the flats sold of the building No.159 RabindraSarani, Kolkata 700007 respectively were not included at the time of determining the values of the unsold portions of the said two buildings i.e. at the time of arriving at the values ofClosing Stock of the said two buildings. Accordingly, the assessee has arrived at the following values of Closing Stocks of the unsold flats of the said two buildings: (i) Building No. 157 RabindraSarani, Kolkata 700007 at Rs. 22,04,490/-; and (ii) Building No. 159 RabindraSarani, Kolkata 700007 at Rs. 1,69,61,480/-. Thus, totaling to Rs. 1,91,65,970/-( Rs. 22,04,490 + Rs. 1,69,61,480).
We note that the Ld. A.O. has failed to understand the above mentionedfacts. Rather he has concluded erroneously that the renovation expenses of Rs.37,29,731/- andRs. 23,52,484/- were incurred for the said two buildings as a
Onkar Parivahan Finance Pvt. Ltd. ITA No.158/Kol/2017 Assessment Year:2011-12 whole. Accordingly, he has arrived at the following Closing Stock values i.e. the values of the unsold portions of the said two buildings after including the proportionate renovation expenses incurred of Rs. 37,29,731/- and Rs. 23,52,484/- for the two buildings: (i) Building No. 157 RabindraSarani, Kolkata 700007 at Rs. 54,81,819/-; and (ii) Building No.159 RabindraSarani, Kolkata 700007, at Rs. 1,92,51,361/-. Thus, totaling to Rs. 2,47,33,180/- (Rs. 54,81,819+ Rs. 1,92,51,361). We note that the renovation expenses in respect of property at 157, Rabindra Sarani and 159, Rabindra Sarani were borne exclusively in respect of the areas sold. The assessing officer has failed to bring any cogent evidence on record to show that these expenses were not borne exclusively in respect of the areas sold. Hence, the assessee, OPFPL has applied renovation expenses incurred of Rs. 37,29,731/- and Rs. 23,52,484/- for the sold flats of the two buildings to determine surpluses from the sale of flats of the said two buildings. Based on this factual position we allow the ground No.1 raised by the assessee.
Ground No. 2 raised by the assessee relates to disallowance and addition made by the Assessing Officer u/s 40(a)(ia) of the Act in respect of purchase of Rs. 1,89,96,589/- and purchase of gift items of Rs. 5,95,598/-.
The brief facts qua the issue are that by examination of the books of accounts and details furnished in the course of assessment proceeding, the assessing officer noted that in the case of M/s Onkar, the textile division, revealed that the assessee had made payment of Rs.41,50,968/- to M/s. Tirupati Mercantile & Trading Co Ltd, on account of printing charges till 25.06.2010, on which it had deducted tax at source to the extent of Rs.82,110/- u/s 194C of the Act. However, on and from 28.06.2010, it had made payment to the said M/s. Tirupati Mercantile & Trading Co Ltd to the extent of Rs.1,89,96,589/- under the changed nomenclature of payment on account of sales in the same continuing ledger account and had not deducted tax at source u/s 194C on such payments. In the course of assessment proceeding, the assessee was asked to furnish details of its purchases above Rs. 10 lacs from a single party during the year. The AO noticed that such details
Onkar Parivahan Finance Pvt. Ltd. ITA No.158/Kol/2017 Assessment Year:2011-12 furnished by the assessee do not contain the name of M/s. Tirupati Mercantile & Trading Co Ltd. In the course of assessment proceeding, the assessee was asked to furnish details of Printing charges as debited in its profit & loss account. The AO noted that such details furnished revealed that all the payments made to M/s Tirupati Mercantile & Trading Co Ltd were debited on account of Printing Charges. Copy of audited accounts of M/s Tirupati Mercantile &Trading Co Ltd was also called for. Examination of such accounts, AO noticed that the said company had disclosed sales of textiles to the extent of Rs.1,29,30,755/- as against claim of purchase of Rs.1,89,96,589/- made by the assessee. Copy of bills raised by M/sTirupati Mercantile & Trading Co Ltd, on the assessee, were also called for examination of such bills till the date 25.06.2010 and the bills for the rest of the year were exactly similar and non-differentiable.In view of the observation made above, the assessee was required to explain why the sum of Rs.1,89,96,589/- paidto M/s. Tirupati Mercantile & Trading Co Ltd, on account of Printing Charges shall not be disallowed u/s 40(a)(ia) of the Income Tax Act, 1961, for violation of section 194C of the Act.
Similarly, it was also observed by the AO from the details of business promotion expenses that the assessee had failed to deduct tax at source on payment of Rs.5,95,598/- to one M/s. G.B.Promoters and on payment of Rs. 67,067/- to M/s. Dreamz Kraft. The assessee was asked to furnish details and evidences in support of such claim. The assessee was, therefore, required to explain why the sum of Rs. 5,95,598/- and Rs. 67,067/- shall not be disallowed u/s 40(a)(ia) of the Act for violation of provisions of Chapter XVII-B of the Act.
In response, the assessee submitted reply. After going through the submission of the assessee, on the issue of payment to M/s. Tirupati Mercantile & Trading Co Ltd, the AO noted that from para-15 of Notes to Accounts of the Audited Accounts regarding related party disclosure, it was observed that the assessee and M/s. Tinipati Mercantile & Trading Co Ltd are under the same management and, therefore, the difference in the quantum of sales made by M/s. Tirupati Mercantile & Trading Co Ltd and the payments made by the assessee under the nomenclature
Onkar Parivahan Finance Pvt. Ltd. ITA No.158/Kol/2017 Assessment Year:2011-12 of sales is unexplainable. Therefore, the sum of Rs.1,89,96,589/- paid to M/s. Tirupati Mercantile & Trading Co Ltd on account of printing charges in violation of Chapter-XVII B of the Act was disallowed 40(a)(ia) of the Act.
On the issue of payment of Rs. 5,95,598/- to M/s G.B. Promoters, on account of business promotion expense without deduction of tax at source, the assessee has claimed to have made payments to such party for purchase of gift items. The assessee was asked to produce bills raised by M/s G.B. Promoters relating to such purchase. The assessee failed to produce such bills in the course of assessment proceeding and neither could it furnish the same along with the submission made. Hence, the submission of the assessee was considered by AO as an afterthought and the expense of Rs. 5,95,598/- was disallowed u/s 40a(ia) of the Act.
Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the addition made by assessing officer. Before us, ld Counsel for the assessee reiterated the submissions made before the ld CIT(A). On the other hand, the ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.
17.We have heard both the parties and perused the material available on record. We note that assessee, “the OPFPL” purchased goods worth Rs.1,89,96,589/- from Tirupati Mercantile & Trading Co. Limited and paid for that accordingly. During the appellate proceedings, the assessee submitted Photocopy of the certificate from Tirupati Mercantile & Trading Co. Limited confirming that they have sold fabrics & Sarees to the assessee. We note that assesseewas purchasing from Tirupati Mercantile & Trading Co. Ltd. form 28.06.2010 and before that period asseseee have do only printing work on contract basis. So up to the date of 25.06.2010,assessee has deducted the TDS on printing work only. Thereafter, assessee started purchasing from the said party. Since job work and purchases is made from same party, same ledger is continued.
Onkar Parivahan Finance Pvt. Ltd. ITA No.158/Kol/2017 Assessment Year:2011-12 Since same ledger of Tirupati Mercantile & Trading Co. Ltd. for job work and purchase is continued, the assessee fails to give effect of purchases from Tirupati Mercantile& Trading Co. Ltd. in the details of purchase above 10 lakhs from party. Hence, it is purchase from the said party, so there was no question to deduct the TDS u/s 194C. However, ld DR for the Revenue submitted before us that assessee has not produced the purchase bills and other details of the said party before AO, therefore, the assessee has failed to prove the bona fide of these purchases.
We note that assessee, ‘OPFPL’, claimed to have purchased some gift items worth Rs.5,95,598/- for the purpose of its business promotion. These gift items were purchased from M/s G.B. Promoters. The assessee paid the amount of Rs. 5,95,598/- to M/s G.B. promoters for purchase of said gift item. This payment was made through account payee cheque. Later on, the party to whom payment was made did not deliver the gift item therefore, the assessee has written off the said amount in the books of the assessee, as bad debts. The ld Counsel submitted before us that this amount is in the nature of Bad debts and it was by mistake appeared in business promotion ledger account,hence, there is no question arises to deduct TDS on said amount. The ld Counsel submitted before us that the assessee company was not liable to deduct TDS under any circumstances on those purchase of gift items worth Rs.5,95,598/-. There is no provision in the Act to make TDS on purchase of gift items.
Per contra, ld DR for the Revenue submitted before us that assessee has not submitted purchase bills of these gift items and failed to substantiate its claim. The ld AO has mentioned in his order that details of purchases over Rs.10 lakhs does not contain the name of M/s Tirupati Mercantile & Trading Co. Ltd. Hence, regardingpayments of Rs.1,89,96,589/- to Tirupati Mercantile & Trading Co. Limited for purchases of goods, the assessee has not submitted bills and other necessary evidences. Regarding purchase of gift items worth Rs.5,95,598/-, the assessee has not submitted bills and invoices to substantiate its claim.
Onkar Parivahan Finance Pvt. Ltd. ITA No.158/Kol/2017 Assessment Year:2011-12 Hence, ldDR requested the Bench to remit this issue back to the file of the assessing officer for verification of purchases of both the parties. However, ld Counsel for the assessee has also fairly agreed that assessee has not submitted purchase bills and other required documents to prove the bona file of purchases from M/s Tirupati Mercantile & Trading Co. Ltd Rs.1,89,96,589/- and purchases of gift items from M/s G.B. Promoters of Rs. 5,95,598/-, therefore, this issue may be remitted back to the file of the AO for verification.
Therefore, based on the submissions made by the ld. Counsel and ld DR for the Revenue that the deduction of TDS u/s 40a(ia) of the Act and purchases made by the assessee needs to be examined by the Assessing Officer, therefore we are of the view that purchases from M/s Tirupati Mercantile & Trading Co. Ltd Rs.1,89,96,589/- and purchases of gift items from M/s G.B. Promoters of Rs. 5,95,598/-, should be remitted back to the file of the Assessing Officer for his necessary verification. Therefore, we allow this grounds of appeal raised by the assessee for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the Court on 24.04.2019
Sd/- Sd/- (A.T.VARKEY) (A.L.SAINI) �या�यकसद�य / JUDICIAL MEMBER लेखासद�य / ACCOUNTANT MEMBER �दनांक/ Date: 24/04/2019 (SB, Sr.PS) Copy of the order forwarded to: 1. Onkar Parivahan Finance Pvt. Ltd. 2. ITO, Ward-9(2), Kolkata 3. C.I.T(A)- 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File.