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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri M. Balaganesh & Shri S.S. Viswanethra Ravi
This appeal by the Assessee is directed against the order of the Commissioner of Income Tax (Appeals), 15, Kolkata dt. 25-02-2015 for the A.Y 2010-11.
Brief facts of the case are that the assessee is an individual and engaged in real estate and civil construction business. The assessee filed his e-return declaring total income of Rs.54,47,604/- on 28-0- 2010. Notices u/s. 143(2) and 142(1) of the Act were issued. In response to said notices, the AR representing the assessee filed details and produced documents before the AO in support of the claim. The AO considering the submissions along with details filed determined the total income at Rs. 2,04,65,720/- by making the following additions vide an order dt. 01-03-2013 passed U/Sec 143(3) of the Act:
a) Rs.5,24,639/- u/s. 14 r.w.r 8D b) Rs. 23,48,094/- under deferred revenue expenditure c) Rs.6,09,193/- difference between income as ITR and income as per books
Ground no. 1 is relating to confirmation of addition of Rs. 5,24,639/- made u/s. 14 r.w.r 8D of the IT Rules.
On perusal of return, the AO found that the assessee made suo moto disallowance of Rs. 13,810/- for the purpose of computing expenditure u/s. 14A, which was not accepted by the AO. The AO u/s. 14A disallowed an amount of Rs. 5,25,639/- by invoking the provisions of section 14A r.w.r 8D(2) (i), (ii) & (iii) of the IT Rules and added the same to the total income of assessee by estimating as under:
Disallowance u/s. 14A read with Rule 8D is as follow: (a)=Total interest x Average total investment/average total assets= (Rs.3002781 x Rs.4342000) / Rs.25924286 = Rs. 5,02,929 (b)=.5% of average investment = .5% x Rs. 4,342000 = Rs. 21,710 Disallowance u/s. 14A (a + b)= Rs. 5,24,639
Before the CIT-A it was contended by the assessee that he earned dividend income of Rs. 64,392/- and without recording any satisfaction regarding the accounts of assessee in respect of said suo moto disallowance. The assessee in support of his claim placed reliance on the decision of the Hon’ble High Court of Calcutta in the case of REI Agro Ltd Vs. DCIT.
The CIT-A by placing his reliance on the decision of the Special Bench, ITAT, Delhi in the case of Cheminvestment Ltd reported in 121 ITD 362(Del)(SB) confirmed the said disallowance as made by the AO.
Before us the ld.AR reiterated his same submissions made before the CIT-A. He further submits that the Hon’ble High Court of Delhi reversed the finding of Hon’ble Special Bench, ITAT, Delhi in the case of Cheminvestment Ltd reported in 378 ITR 33 (Del). The Hon’ble High Court set aside the order of Special Bench, ITAT, Delhi and held that section 14A of the Act is not applicable if no exempt income is received. The ld.AR referred to the order dt. 06-12-2017 of Co-ordinate Bench of this Tribunal in the case of Development 2 Consultant P.Ltd, copy of the same is on record, and argued that disallowance as per rule 8D of the IT Rules 1962 shall be made by taking into consideration only those shares which have yielded the dividend income for the A.Y under consideration and prayed to remand the issue involved in the appeal to the file of AO for his fresh verification.
On the other hand, the ld.DR relied on the orders of the AO & CIT-A.
Heard both the parties and perused the record. We also find that the assessee earned dividend of Rs.64,392/- and disallowance should not exceed the dividend income in terms of decision dt. 06-12- 2017 as relied on by the assessee. Admittedly, the AO made disallowance more than the dividend income as earned by the assessee. The order of this Co-ordinate Bench of this Tribunal in the case of REI Agro held that in order to make disallowance under Rule 8D(2) of the IT Rules, 1962 the AO has to give cogent reason for such disallowance. It is also held disallowance made under Rule 8D(2) and disallowance should be in relation to dividend income as earned. The Hon’ble High Court of Calcutta in the case of supra upheld the above view of the Co-ordinate Bench of this Tribunal vide its order dt. 22-12-2013. Therefore, taking into consideration the law laid down by the Hon’ble High Court of Calcutta in the case of REI Agro Ltd, we direct the AO to recompute the disallowance afresh taking into consideration the investments, which yielded the dividend income for the purpose of section 14A of the Act. Thus, ground no. 1 raised by the assessee is allowed for statistical purpose.
Ground nos.2 (a) & (b) are relating to confirmation of addition of shuttering expenses.
On perusal of schedule P of audited accounts of assessee, the AO found that the assessee claimed the following expenditure in his revised return of income:-
(a) Site development & preliminary expenses Rs.3,87,560/- (b) Steel shuttering materials 1/3 written off Rs.9,46,440/- ( c) Wood shuttering materials1/3 written off Rs.14,01,654/- 12. The assessee explained by treating the said expenditure as deferred revenue expenditure in his accounts as the benefit of such expenditure is available to assessee for three years. The AO held that there is no provision of Income-tax Act, 1961 to allow such expenditure under the head ‘deferred revenue expenditure’ and added the same to the total income of assessee
Before the CIT-A, it was contended that the assessee inadvertently treated the said expenditure as deferred revenue expenditure, which was rectified by filing a revised computation at the time of assessment proceedings. The assessee further contended that there was no fresh claim for any other deduction and therefore, pleaded to entertain the fresh claim and in support of his claim, he placed his reliance on the decision of Hon’ble Supreme Court in the case of Goetze (I) Ltd, reported in 282 ITR 323(SC).
The CIT-A considering the submissions of assessee gave relief only to the extent expenditure incurred towards site development & preliminary expenses of Rs.3,87,560/- and confirmed the additions of Rs.9,46,440/- and Rs.14,01,654/- on other two heads ‘steel shuttering materials 1/3 w/o and ‘wood shuttering materials 1/3 w/o.
The AR submits that the assessee has given full details of such expenditure to AO & CIT-A and placed his reliance of the Hon’ble High Court of Punjab & Haryana in the case of Random Constructors P.Ltd reported in 186 taxman 303 ( P & H ) and in view of this, submits that the expenditure is revenue in nature and as such the expenditure is fully allowable as deduction as held by the Hon’ble Co- ordinate Bench, which was upheld by the Hon’ble High Court of Punjab & Haryana in the case of supra. The ld.AR referred to question of law raised by the revenue before the Hon’ble High Court of Punjab & Haryana and argued that the Hon’ble High Court dismissed the substantial question of law raised by the revenue and confirmed the finding of Co-ordinate Bench in treating the said expenditure as revenue in nature.
The ld.DR relied on the orders of the AO & CIT-A.
Heard rival submissions and perused the material on record. We find that the issue in hand is identical to the facts of Hon’ble Punjab & Haryana High Court in the case of Random Constructors P.Ltd. supra. The Hon’ble High Court of Punjab & Haryana held that without there being any material to show that the shuttering materials has value after its life time on account of scrap and the AO cannot come to conclusion that there was income on account of scrap. The substantial question of law raised by the revenue before the Hon’ble High Court of Punjab & Haryana and the finding of it is reproduced herein below:-
1. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was right in law in (confirming order of the learned CIT(A) who deleted the addition of Rs. 2,84,885 made on account of shuttering expenses especially when shuttering materials being a durable item, could be utilized in the subsequent financial year(s) also? 2. Whether, on the facts and in the circumstances of the case, the Hon'ble ITA T was right in law in confirming order of the learned CIT(A) who deleted the addition of Rs. 50,000 made on account of scrap value of shuttering material disregarding the fact that these items had some scrap value?
2. The Assessing Officer disallowed the deduction claimed on account of shuttering expenses. The CIT(A) deleted the additions and upheld the claim of the assessee by holding that the said expenses represented revenue expenses. The Tribunal affirmed the said view with the following observations :- "The expenditure in question had been incurred during the P.Y. and was revenue in nature. The fact that the material could be used in the subsequent assessment year is no ground to deny the claim for deduction. Consequently, ground No. 1 raised by the revenue is dismissed. ****** There is no material before the Assessing Officer to come to the conclusion that there was income of Rs. 50,000 on account of scrap value of shuttering materials. In fact the certificate of the engineering on which Assessing Officer placed reliance clearly states that the wooden shuttering material have no use after the lifetime."
Respectfully following the above, we are of the view that the CIT-A was not correct in confirming the impugned additions made on account of steel shuttering materials 1/3 written off and wood shuttering materials 1/3 written off. The same is directed to be deleted. Ground no.2(a) and ( b) of assessee’s appeal are allowed.
Ground no.3 is relating to confirmation in part of addition of Rs.6,09,193/- made on account of difference between income as per ITR and as per books of account of assessee.
On perusal of consideration statement, the AO found difference of income as per ITR and income as undertaken as under:-
As per ITR As per Income undertaken Name of the Co. Amount Amount Balmer Lawrie & Co.Ltd Rs.30,49,400/- Rs.37,85,829/- Bengal Chemicals & Rs.194,21,042/- Rs.185,59,869/- Pharmaceuticals Ltd Bengal Peerless Housing Rs.383,38,098/- Rs.369,99,209/- Development Co.Ltd. Bengal Shapoorji Housing 29,54,889/- Rs.28,40,213/- Development Pvt. Ltd. Bhangore-Rajarhat Area Rs.665,39,159/- Rs.621,85,121/- Development Authority
According to AO, the difference between the above mentioned five parties is of Rs. 43,54,038/-. Similarly, a difference of Rs. 4,633/- found between the income as per ITR and income as undertaken from State Bank of Bikaner & Jaipur. The AO added an amount of Rs.43,58,671 ( Rs.43,54,038 + Rs.4633) to the total income of assessee.
Before the CIT-A, the assessee contended that the said difference of Rs.43,58,671/- was occurred due to non consideration of TDS schedule in the name of actual party and wrong inclusion of name of other party, inclusion of service tax, income offered in earlier years and subsequent year and income offered, but not shown in the TDS schedule. It was further contended that the AO did not consider the reconciliation statement in respect of such difference.
The CIT-A considering the submissions of assessee restricted the addition to Rs. 6,09,193 by observing as under:-
(a) M/s. Balmer Lawrie & Co. Ltd
In this case the assessee has disclosed receipts from the party at Rs.37,85,829/- whereas the TDS certificate only mentions a payment or credit of Rs.30,49,400/-. Thus the assessee has declared higher receipts by Rs.7,35,429/-. The assessee has also claimed TDS of Rs.60,988/- in his return of income as per the TDS certificate of M/s. Balmer Lawrie & Co Ltd. Thus merely became the assessee has disclosed higher receipts than those mentioned in the TDS return it would not lead to any conclusion of escapement of revenue without the AO bringing anything on record. The AO has accepted the books of account of the assessee and the ledger account of M/s. Balmer lawrie & Co. Ltd too. Further though the assessee credited TDS of Rs.75,717/- from this party in the ledger account, the assessee in the return of income has only claimed TDS of Rs.60,988/- as per the TDS certificates. The discrepancy in TDS, actual and debited, could be due to some communication error which is rectifiable and in this case it has no revenue impact.
(b) M/s Bengal Chemical & Pharmaceuticals Ltd:
In the ITR-TDS 2 Schedule. the assessee had declared receipts of Rs. 1,94,21,042/- from M/s. BCPL (as per TOS certificate) whereas the assessee had disclosed taxable receipts from the party only at Rs.1 ,85,59,869/-. The assessee has explained this difference as under - As per TDS Schedule Rs.1,94,21,042/- Add: Amount wrongly included in the name in the name of Phangore Rajarhat Area Development Authority Rs. 27.75,730/- Add: Income offered but not reflected in form No. 26AS Rs. 41,42,745/- Rs. 2,63,39,517/- Less: Service Tax on which no TDS done Rs. 11,29,889/- Rs.2,51,59,628/- Less: Income already offered to tax in earlier year Rs. 65,99,759/- Income shown in books of account Rs. 1,85,59,869/-
Thus the assessee has claimed that there is no difference. In the rejoinder the assessee has also clarified the confusion on the part of the AO regarding TDS done. It is seen that there is no actual difference. Thus there is no revenue impact in this case also.
( c) M/s. Bengal Peerless Housing Development Co. Ltd
In this case there is difference. The assessee has declared receipts from the party at Rs.3,69,98,209/- but the Form 26AS as well as the TDS certificate duly mention the sum paid/credited to the assessee at Rs.3.83.38.098/- and the assessee has taken full credit for the TDS done by the party also.
The assessee has attempted to reconcile the difference by claiming that he has offered a sum of Rs.6,09,193/- in the next financial year and a further sums of Rs.7,29,696/- was explained to be the service tax component.
After considering the facts of the case, it is held that the assessee has under-reported his income by Rs.6,09,193/- and this addition is confirmed. The assessee has not been able to produce any evidence or jurisdiction for not declaring this sum as his taxable receipts for the year.
(d) M/s. Bengal Shapoorji Housing Development P.Ltd.
In this case the assessee had raised bills of Rs.29,54,889/- on the party and the assessee has declared taxable receipts at only Rs.28,40,213/-. There is no actual difference as the party also has mentioned the service tax component of Rs.1,14,675/- in the TDS certificate. The AO has accepted these facts in the remand report and hence no adverse view is taken.
(e) M/s. Bhangore Rajarhat Area Development Authority
In this case the TDS Schedule had mentioned receipt from this party at Rs.27,75,730/- but the same was not mentioned as taxable income by the assessee.
The assessee has explained that this sum was paid to him by BCPL only not by Bhangore Rajarhat Area Development Authority. The assessee has explained that this sum is declared against the name of BCPL in Form No. 26 AS and by mistake, the assessee in the TDS Schedule had mentioned the wrong name. The AO has accepted this fact in the remand report and thus there is no revenue impart. (f) On the issue of difference of Rs.4,633/- in case of State Bank of Bikaner & jaipur, the assessee has made no comments and this addition is confirmed. In view of the above the assessee’s ground of appeal No. 2 is partly allowed and the addition of Rs.43,58,671/- is restricted to 6,09,193/- plus Rs. 4633 i.e. Rs.6,13,826/-. The assessee gets a relief of Rs.37,44,845/-.”
The ld.AR submits that the assessee offered an amount of Rs. 6,09,193/- to tax in the subsequent assessment year. Further, he argued that the revenue is not loosing anything either in previous year or next year and prayed to give direction to the AO to consider the impugned amount may be reduced from the income of assessee in subsequent assessment year. The ld.DR relied on the orders of the AO & CIT-A.
Heard both the parties and perused the record. We find from the order of CIT-A that the assessee pleaded that this very sum of Rs.6,09,193/- has been offered to tax in the next assessment year by him. The ld. AR fairly pleaded let this sum be taxed in the A.Y under appeal and consequently, a direction be given to AO to reduce a sum of Rs.6,09,193/- from the income of next assessment year i.e. A.Y 2011-12 in order to avoid double taxation. We find force in this argument of ld.AR. Ground no. 3 is dismissed subject to direction to AO that a sum of Rs.6,09,193/- shall be reduced from the income of assessee in next assessment year i.e. A.Y 2011-12.
In the result, the appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the open court on 25-04-2018