Income Tax Appellate Tribunal - Kolkata
Shristi Infrastructure Development ... vs Acit, Circle-11(2), Kolkata, Kolkata on 25 September, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL "B", BENCH KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.1663/Kol/2016 ( नधारणवष / Assessment Year:2011-12) ACIT, Circle-11(2), Kolkata Vs. M/s Shristi Infrastructure Development Corporation Ltd.
Plot no. X-1, 2 & 3, Block-EP, Sector-V, Salt Lake City, Kolkata-
700091 थायीले खासं . /जीआइआरसं . /PAN/GIR No.: AABCP 5074 F (Appellant) .. (Respondent) C.O. No. 59/Kol/2016 (Arising out of आयकरअपीलसं./ITA No.1663/Kol/2016) ( नधारणवष / Assessment Year:2011-12) M/s Shristi Infrastructure Vs. ACIT, Circle-11(2), Kolkata Development Corporation Ltd.
Plot no. X-1, 2 & 3, Block-EP, Sector-V, Salt Lake City, Kolkata-700091 थायीले खासं . /जीआइआरसं . /PAN/GIR No.: AABCP 5074 F (Cross objector) .. (Respondent) Appellant by : Shri Robin Choudhury, Addl. CIT (DR) Respondent by : Shri S. M. Surana, Advocate सुनवाईक तार ख/ Date of Hearing : 23/07/2019 घोषणाक तार ख/Date of Pronouncement : 25/09/2019 Shristi Infrastructure Development Corporation Ltd. I TA No .1 6 6 3 / Ko l /2 0 1 6 & C . O. No . 5 9 / Ko l /2 0 1 6 A s se s smen t Yea r: 2 0 1 1 - 1 2 आदे श / O R D E R Per Dr. A. L. Saini:
The captioned appeal filed by the Revenue, and cross objection filed by the assessee, pertaining to assessment year 2011-12, are directed against the order passed by the Commissioner of Income Tax (Appeal)-4, Kolkata, 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 27/03/2014.
2. Grounds of appeal raised by the Revenue are as follows:
i. That on the facts and circumstances of the case the ld. CIT(A) has erred in deleting the addition of Rs. 90,32,940/- made by the Assessing Officer considering the same to be estimated in nature, while the addition was actually made due to failure of the assessee in producing supporting bills, vouchers and other documentary evidences to substantiate the said expenditure.
ii. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the addition disallowance of the claim of depreciation in spite of assessee's failure to disclose goodwill in the accounts of FY 2006-07.
iii. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the disallowance of the claim of depreciation in spite of assessee's failure to justify enumeration of goodwill.
iv. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the disallowance the claim of depreciation on goodwill through major part of the claim pertained to earlier assessment years.
v. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the additions made on account of bad debts in absence of corroborating evidences.
vi. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the additions made on account of bad debts on the basis of evidences, which were not send to the Assessing Officer for examination as per the provisions of Rule 46A of IT Rules.
vii. That on the facts and in the circumstances of the case the ld. CIT(A) has erred in deleting the additions made on account of un-reconciled closing balance with M/s Madhumita Construction P Ltd. on the basis of fresh reconciliation submitted by the assessee, which were not send to the A.O. for examination as the provisions of Rule 46A of IT Rules.
viii. That the assessee craves to add, delete or modify any of the grounds of appeal before or at the time of hearing.
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3. Ground No. 1 raised by the revenue relates to deletion of addition of Rs. 90,32,940/- made by the Assessing Officer on estimated basis, due to failure of the assessee in producing supporting bills and vouchers.
4. Facts of the case may be stated briefly. The assessing officer, during the scrutiny proceedings, while going through the details of Construction expenses, found that the assessee has claimed Miscellaneous construction expenses of Rs. 1,84,10,808 -. On perusal of Profit & Loss account it was noted that assessee has alreadyclaimed Rs.40,76,817/- as Miscellaneous expenses under the head Administrative,selling and other expenses. During the course of assessment proceedings, the assessee submitted details of Misc. expenses incurred by the assessee; site-wise. The assessee was asked to submit the reason for claiming further Misc. construction expenses of Rs. 1,84,10,808/- and also the details of expenses incurred along with supporting documentary evidence. In response, the assessee submitted that the assessee company had made numerous payments for labour charges and other incidental expenses incurred mostly at Bhopal & Bareilly sites as the projects were at completion. However, AO noted that the assessee failed to submit the documentary evidence in support of expenses of Rs.40,15,100/- in respect of Bhopal Site and Rs. 49,12,500/- and Rs. 1,05,340/- in connection with Bareilly and Sports City Haldia site respectively. Thus, AO disallowed Rs. 90,32,940/-( Rs.40,15,100 + Rs.49,12,500+ Rs.1,05,340) under the head Misc, construction expenses.
5. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer.Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us.
6. 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. On other hand, the ld. Counsel for the assessee defended the order passed by the ld CIT(A).
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7. We have heard both the parties and perused the material available on record. We note that the during the assessment proceedings the assessee submitted the project wise details of these expenses on 21st March, 2014. However, in the impugned assessment order, the ld. Assessing Officer without giving proper opportunity of being heard to the assessee, disallowed Rs. 90,32,940/- incurred on account of the below noted project sites:
Sl. No. Particulars Expenses incurred Amount disallowed on ad hoc basis 1 Bhopal Site 5,619,157 4,015,100 2 Bareilly Site 9,659,861 4,912,500 3 Haldia Site 1,085, 640 105,340 Total 9,032,940 It is a well-established principle that ad hoc disallowance made by an Assessing Officer without proper verification of the facts is bad in law and in gross violation of the principles of natural justice.In our opinion, the Scheme of the Act does not authorize the Assessing Officer to make a disallowance according to his wishes, rather it provide that he should first point out the defects in the accounts of the assessee. If the Assessing Officer is not satisfied with a particular expense, he may make necessary verification and also to point out defect in the books of account, but ad hoc disallowance should not be made by making general observation. In the instant case, since ad hoc disallowance is made by making general observation, we do not find any merit in the addition made by the Assessing Officer, That being so we decline to interfere in the order passed by ld CIT(A), his order on this issue is hereby upheld and grounds of appeal raised by the Revenue is dismissed.
8. Ground Nos. 2, 3 and 4 raised by the Revenue relates to depreciation on goodwill.
9. Brief facts qua the issue are that on perusal of submission made by the assessee company on 14.03.2014 and also going through the computation of income filed with the revised return of income on 09.01.2013, it was noted that assessee has claimed depreciation on goodwill of Rs.2,50,00,000/-. During the Page | 4 Shristi Infrastructure Development Corporation Ltd. I TA No .1 6 6 3 / Ko l /2 0 1 6 & C . O. No . 5 9 / Ko l /2 0 1 6 A s se s smen t Yea r: 2 0 1 1 - 1 2 course of assessment proceedings, the assessee furnished written submission on 14.03.2014 regarding claim of depreciation on goodwill, which is reproduced below:
As informed in our earlier hearings, the erstwhile Shristi Infrastructure Development Corporation (having its registered office at Delhi) had merged into Peerless Abasan Finance Limited (PAFL) as per order of both Hon'ble High Court at Delhi & Hon'ble High Court at Kolkata and then the name PAFL was changed to Shristi Infrastructure Development Corporation Ltd. As per the amalgamation scheme, the difference between the cost of the net assets and the amount paid by the transferee company, pursuant to amalgamation, has been recorded as goodwill. Hence, based on the aforesaid, a sum of INR 100,000,000 has been recorded as goodwill in the books of SIDCL during F. Y. 2006-07.The Hon'ble SC has, in the case of SMIFS Securities (2012)24 taxmann.com 222(SC) held that goodwill in the form of difference between the amount paid and the cost of the net asset acquired from the amalgamating company is an asset eligible for depreciation under the Act. The ruling of SMIFS securities has also been followed by the Bombay High Court in the case of Birla Global Asset Finance Co. Ltd (Income Tax Appeal No. 6835 of 20 10) and Toyo Engineering India Ltd (TS-811-HC-20 12BOM). Goodwill has arisen in the books of SIDCL in the FY 2006-07. The company has not claimed depreciation on goodwill in any Assessment Year prior to A. Y. 11-12.
Section 43(6) of the Act provides as follows: "written down value" means-
a. In the case of assets acquired in the previous year, the actual cost to the assessee; b. In the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922(11 of 1922) or any Act repealed by that Act, or under any executive orders issued when the Indian Income Tax Act 1886(2 of 1886), was in force."
Hence, we had claimed depreciation on actual cost of goodwill (intangible asset) i.e. INR 10 crores during AY 2011-12 at the rate of 25% by filing a revised return. The claim for deprecation in this year is INR 2.5 crores."
However, the assessing officer rejected the claim of the assessee and noted that the tax audit report and profit & loss account and balance sheet of the assessee company Shristi Infrastructure Development Corporation Ltd. filed for the FY 2006-07 filed along with the return of income for the AY 2007-08, it is revealed that there was no goodwill reflected as an asset. Therefore, the claim of the assessee company is baseless that goodwill to the tune of Rs. 10 crores was recorded as an asset in the FY 2006-07. Therefore, the depreciation of Rs. 2.5 crore claimed on goodwill was disallowed.
10. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Page | 5 Shristi Infrastructure Development Corporation Ltd. I TA No .1 6 6 3 / Ko l /2 0 1 6 & C . O. No . 5 9 / Ko l /2 0 1 6 A s se s smen t Yea r: 2 0 1 1 - 1 2 Assessing Officer. Aggrieved by the order of the ld. CIT(A) the revenue is in appeal before us.
11. 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.On the other hand, the ld. Counsel for the assessee defended the order passed by ld CIT(A).
12.We have heard both the parties and perused the material available on record. We note that pursuant to scheme of amalgamation approved by the Hon'ble High court of Delhi on 22nd May, 2007 and Hon'ble Calcutta High Court on 20th June, 2007, the erstwhile Shristi Infrastructure Development Corporation Ltd. merged with Peerless Abasan Finance Ltd. (PAFL). Post-merger, the name of Peerless Abasan Finance Ltd. was changed to Shristi Infrastructure Development Corporation Ltd. In terms of the Scheme of amalgamation, the purchase consideration paid by PAFL to erstwhile Shristi Infrastructure Development Corporation Ltd. exceeded the cost of net assets taken over. Consequently, a sum of INR 100,000,000 was recorded as goodwill in the books of the assessee during the FY 2006-07.For the assessment year under consideration, the assessee filed a revised return of income and claimed depreciation on goodwill recorded in books at the rate of 25% being an eligible asset in terms of section 32(1) of the Act. We note that by going through the provisions of section 32(1) of the Act there remains no ambiguity that depreciation is allowable on Goodwill which can be classified under the category of 'any other business or commercial rights of similar nature'. This view is supported by the decision of the Hon'ble Supreme court in the case of the CIT vs. Smits Securities Ltd. [2012] 24 taxmann.com 222 (SC). We note that the decision of Supreme Court has also been followed in the following decisions wherein it was held that depreciation is allowable on goodwill arising on merger:
- DCIT vs. Worldwide Media [2014] 43 Taxmann.com 18-Mum ITAT
- Triune Energy Services (P) Ltd.-vs DCIT, [2016] 65 Taxmann.com 288-Del HC)
- Cyber India online ltd. vs ACIT [2014] 42 Taxmann. Com 108 Page | 6 Shristi Infrastructure Development Corporation Ltd.
I TA No .1 6 6 3 / Ko l /2 0 1 6 & C . O. No . 5 9 / Ko l /2 0 1 6 A s se s smen t Yea r: 2 0 1 1 - 1 2 We note Assessing Officer has disallowed the depreciation on goodwill merely on the ground that the goodwill is not reflected in the post-merger audited financial statement and the tax audit report of the assessee. In this regard, the assessee has submitted that post approval of merger by the Hon'ble High Court of Delhi and Hon'ble Calcutta High court, the audited financial statement for FY 2006-07 clearly reflected the amount of goodwill for a sum of Rs. 100,000,000/- that arose pursuant to the merger. The same was also filed with the A.O. vide letter dated 21st March, 2014. Though in the tax audit report the tax auditor has not considered the depreciation on goodwill, but the same cannot be the basis of disallowance. We find that such disallowance made by the Assessing Officer is erroneous. On appeal by assessee, ld CIT(A) has appreciated the facts of the assessee company and deleted the addition.That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and the grounds of appeal raised by the revenue are dismissed.
13. Ground nos. 5 and 6 raised by the revenue relate to deletion of addition on account of bad debts.
18. Brief facts qua the issue are that during the course of assessment proceedings the assessee submitted details of bad debt written off during the relevant AY 2010- 11 along with bill wise details of inclusion of the income reflected in the relevant year and amount received from the parties resulting in irrecoverable debts. However, the AO noticed that the assessee has shown opening balance of Rs. 8,20,493/- as invoice raised against PWD Burdwan. The assessee was requested to establish with supporting evidence that in which relevant financial year the opening balance of Rs.8,20,493/- was taken into account in computing the income of the assessee. But the assessee failed to furnish the relevant details with supporting evidence. Similarly the assessee company also shown Rs. 30,69,639/- as opening balance against invoice raised in the case of IRCON International. In this case also the assessee was unable to submit necessary evidence that in which financial year the said amount was considered in computing the income of the assessee. Therefore, in absence of documentary evidence the irrecoverable debt Page | 7 Shristi Infrastructure Development Corporation Ltd. I TA No .1 6 6 3 / Ko l /2 0 1 6 & C . O. No . 5 9 / Ko l /2 0 1 6 A s se s smen t Yea r: 2 0 1 1 - 1 2 written off claimed by the assessee in the case of PWD Burdwan and IRCON International to the tune of Rs. 8,20,493/- and Rs. 30,69,639/- respectively were disallowed. The assessee company has shown Rs.5,14,123/- as fixed assets written off in total claim of irrecoverable debt written off but no documentary evidence is produced in support of claiming such debt. In absence of proper evidence the amount of Rs. 5,14,123/- was disallowed under the head irrecoverable debt written off. Thus, the total disallowance under the head irrecoverable debt written off came to Rs. 8,20,493 + Rs. 30,69,639+ Rs. 5,14,123 i.e. Rs. 44,04,255/- which was added back to the total income of the assessee.
19. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us.
20. 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. On the other hand, the ld. Counsel for the assessee defended the order passed by ld CIT(A).
21.We have heard both the parties and perused the material available on record. We note that in response to the query of the AO, the assessee submitted details of bad debts written off before him vide submission dated 1 January 2014. The claim of bad debt of Rs. 44,04,255/- consisted of debts due from IRCON and PWD amounting to Rs. 38,90, 132/- and remaining debt written off represented write off of Fixed asset. We note that AO disallowed bad debts written off in the P&L a/c aggregating to Rs.38,90,132/-, representing unrealized balances of debtors viz. IRCON and PWD for sales made up to 31stMarch 2006 and 31 March 2001 respectively. On further enquiry by the AO, the Assessee filed submission dated 14.03 2014 before the AO, mentioning the details of debtors whose balances were written off as bad during the financial year 2010-11. The bad debt written off in the profit and loss account during the financial year under consideration included Page | 8 Shristi Infrastructure Development Corporation Ltd. I TA No .1 6 6 3 / Ko l /2 0 1 6 & C . O. No . 5 9 / Ko l /2 0 1 6 A s se s smen t Yea r: 2 0 1 1 - 1 2 write off of fixed assets/other balances amounting to Rs. 5,14,123/-, this clearly being a capital write off is not eligible to be claimed as revenue loss. This is a capital loss. Hence the action of AO in disallowing write off of Rs. 5,14,123/- on account of fixed asset was upheld by CIT(A). Regarding the remaining disallowance of Rs. 38,90,132/- the ld CIT(A) noticed that the unrealized amount from IRCON in the books of the Assessee for invoices raised during the financial year 2004-05 and 2005-06 amounted to Rs. 30,69,639/-. From the ledger account of IRCON as submitted by the assessee, it is clear that no realization was made against such invoices. The ld CIT(A) further noted that the contract income earned by the assessee,during the financial year 2004-05 amounting to Rs. 41,979,360/- was duly offered to tax in the AY 2005-06 & 2006-07. In view of the above, it is apparent that the amount of Rs. 30,69,639/- mentioned as opening balance in the details submitted before the AO is the unrealized amount which is nothing but unrealized amounts against invoices raised by the assessee on PWD & IRCON during the FYs 2001-02, 2004-05 and 2005-06 which were offered to tax as income in the earlier years and on becoming irrecoverable, the same has to be allowed as bad debts during the relevant assessment year under the provisions of section 36(1)(vii) of the Act. Therefore, ld CIT(A) has rightly deleted the addition made by assessing officer. That being so, we decline to interfere in the order passed by the ld. CIT(A), his order on this issue, is hereby upheld and the grounds of appeal raised by the revenue are dismissed.
22. Ground no. 7 raised by the revenue relates to addition made on account of unreconciled closing balance with M/s Madhumita Construction P. Ltd..
23. Brief facts qua the issue are that in order to verify the genuineness of transactions made by the assessee letters were issued by assessing officer u/s 133(6) of the I.T. Act,to various parties. On going through the reply received from M/s Madhumita Construction P. Ltd. in compliance to 133(6) of the I.T. Act, it is revealed that the said party has shown Rs. 5,53,972/- as closing balance in the books of accounts whereas the assessee company has shown Rs.7,57,627/- as closing balance. The assessee was asked to explain the discrepancy in transaction Page | 9 Shristi Infrastructure Development Corporation Ltd. I TA No .1 6 6 3 / Ko l /2 0 1 6 & C . O. No . 5 9 / Ko l /2 0 1 6 A s se s smen t Yea r: 2 0 1 1 - 1 2 with the said party but the assesseewas not able to reconcile the discrepancy. As such the difference amount of Rs. 2,03,655/- (Rs.7,57,627 - Rs.5,53,972) was treated as excess liability shown by the assessee company in the books of accounts and thus Rs. 2,03,655/- was added back to the total income of the assessee.
24. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted the addition made by the Assessing Officer. Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us .
25. 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.
26. We have heard both the parties and perused the material available on record. We note that the difference in liability is primarily on account of the accounting of service tax. The ld Counsel submits that it is not the case where excess expenditure has been recorded for which liability has arisen. The amount of service tax for which liability is reflected is not claimed by the assessee as an expense. Further, the liability so created has subsequently been paid by the assessee. The difference in accounting treatment followed by the both the parties cannot lead to any addition as unexplained liability. Therefore, we note that the question of overstating the expenditure of accounting for unexplained purchases does not arise. Therefore, the addition of Rs. 2,03,655/- made by the Assessing Officer has rightly been deleted by ld CIT(A). Hence we confirm the order of Ld CIT(A).
27. Now we shall take cross objections filed by the assessee in C.O. No. 59/Kol/2016 for A.Y. 2011-12.
28. At the outset, we note that the grounds taken in the cross objection by the assessee are supportive to the order of the ld. CIT(A), therefore they do not require Page | 10 Shristi Infrastructure Development Corporation Ltd. I TA No .1 6 6 3 / Ko l /2 0 1 6 & C . O. No . 5 9 / Ko l /2 0 1 6 A s se s smen t Yea r: 2 0 1 1 - 1 2 any adjudication as we have confirmed the order of the ld. CIT(A), hence the cross objection raised by the assessee become infractuous.
29. In the result, the appeal filed by the Revenue in I.T.A. No. 1663/Kol/2016 is dismissed and the cross objection filed by the assessee in C.O. No. 59/Kol/2016 is dismissed as rendered infractuous.
Order pronounced in the Court on 25.09.2019
Sd/- Sd/-
(S.S.GODARA) (A.L.SAINI)
या यकसद य / JUDICIAL MEMBER लेखासद य / ACCOUNTANT MEMBER
दनांक/ Date: 25/09/2019
(SB, Sr.PS)
Copy of the order forwarded to:
1. ACIT, Circle-11(2), Kolkata
2. M/s Shristi Infrastructure Development Corporation Ltd.
3. C.I.T(A)- 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.
6. Guard File.
True copy By Order Assistant Registrar ITAT, Kolkata Benches Page | 11