Income Tax Appellate Tribunal - Ahmedabad
Sopan Infrastructure Pvt.Ltd.,, ... vs Department Of Income Tax on 19 January, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " A "
Before Shri BHAVNESH SAINI, JUDICIAL MEMBER and
Shri D.C. AGRAWAL, ACCOUNTANT MEMBER
Date of hearing : 05/01/2010 Drafted on: 19/01/2010
ITA No.295/AHD/2009
Assessment Year : 2005-06
The ITO Vs. Sopan Infrastructure Pvt.Ltd.
Ward-8(2) 15, Swaqstik Bungalow Part-II
Ahmedabad Nr.R.C.Technical Institute
Ghatlodia, Ahmedabad
PAN/GIR No. : AAICS 1538 A
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri P. Oram, Sr. D.R.
Respondent by: Shri S.N. Divatia, Adv.
ORDER
PER D.C.AGRAWAL , ACCOUNTANT MEMBER :-
This is an appeal filed by the Revenue against the order of the Learned CIT(Appeals)-XIV, Ahmedabad dated 03/11/2008 passed for Assessment Year 2005-06, by raising following grounds:
1. The Ld. CIT(A)-XIV, Ahmedabad erred in law and on facts in looking to the facts of the case.
(i) The CIT(A) ought to have upheld the decision of the Assessing Officer in making additions on account of lower valuation of WIP by Rs.3,09,215/-.
(ii) The CIT(A) ought to have upheld the decision of the Assessing Officer in making additions on account of Low GP shown in WIP by Rs.10,48,844/-.
ITA No.295/Ahd/2009ITO vs. Sopan Infrastructure Pvt.Ltd.
Asst.Year - 2005-06 -2-
2. On the facts and in the circumstances of the case, the ld. Commissioner of Income-tax (A)-XIV, Ahmedabad ought to have upheld the order of the Assessing Officer.
3. It is therefore, prayed that the order of the ld. Commissioner of Income-tax(A)-XIV, Ahmedabad may be set-aside and that of the Assessing Officer be restored.
2. Ground Nos.2 & 3 are general in nature, they require no independent adjudication and, therefore, the same are rejected as such.
3. The brief facts of the case are that assessee is a Private Limited Company engaged in the business of civil construction. During the course of assessment proceedings, the Assessing Officer found that assessee has under-valued the work-in-progress by Rs.3,09,215. He found that while valuing the work-in-progress assessee has included direct expenses but it has not included administrative expenses amounting to Rs.5,95,290/- If it is included, then total expenditure would have come to Rs.91,23,900/- as against Rs.85,28,610/- taken by the assessee for valuing work-in-progress of civil construction work. The assessee had constructed total area of 2280 sq.yds out of which unsold area is 1183 sq.yds. The Assessing Officer calculated work-in-progess on the basis of total expenditure at Rs.91,23,900/- and worked out the value of unsold area of Rs.47,34,366/- as against Rs.44,25,151/- worked out by the assessee on the basis of total expenditure of Rs.85,26,610/-. This resulted in an addition of Rs.3,09,215/- in the work-in-progress.
ITA No.295/Ahd/2009ITO vs. Sopan Infrastructure Pvt.Ltd.
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4. The Learned CIT(Appeals) held that as per accounting standard A-7, the administrative expenses is not an allocable cost and, hence, the same should not be included in the cost structure for valuation closing stock. Accounting Standards have been recognized by Apex Court in the case of CIT vs. Bila Hari Investment Pvt.Ltd. 291 ITR 01 (SC). Accordingly, the Learned CIT(Appeals) deleted the addition.
5. Before us, the Learned Departmental Representative relied on the order of the Assessing Officer, whereas the Learned Authorised Representative of the assessee relied on the order of Learned CIT(Appeals).
6. After considering the rival submissions, we decline to interfere with the order of the Learned CIT(Appeals). We, for the sake of convenience, extract the relevant portion from "Accounting Standard" A-7 as below:-
Contract Costs
15. Contract costs should comprise:
a. costs that relate directly to the specific contract;
b. costs that are attributable to contract activity in general and can be allocated to the contract; and c. such other costs as are specifically chargeable to the customer under the terms of the contract.
16. Costs that relate directly to a specific contract include:
a. site labour costs, including site supervision; b. costs of materials used in construction;
c. depreciation of plant and equipment used on the contract; d. costs of moving plant, equipment and materials to and from the contract site; e. costs of hiring plant and equipment;
f. costs of design and technical assistance that is directly related to the contract; g. the estimated costs of rectification and guarantee work, including expected warranty costs; and h. claims from third parties.
These costs may be reduced by any incidental income that is not included in contract revenue, for example income from the sale of surplus materials and the disposal of plant and equipment at the end of the contract.ITA No.295/Ahd/2009
ITO vs. Sopan Infrastructure Pvt.Ltd.
Asst.Year - 2005-06 -4-
17. Costs that may be attributable to contract activity in general and can be allocated to specific contracts include:
a. insurance;
b. costs of design and technical assistance that is not directly related to a specific contract; and c. construction overheads.
Such costs are allocated using methods that are systematic and rational and are applied consistently to all costs having similar characteristics. The allocation is based on the normal level of construction activity. Construction overheads include costs such as the preparation and processing of construction personnel payroll. Costs that may be attributable to contract activity in general and can be allocated to specific contracts also include borrowing costs as per Accounting Standard (AS) 16, Borrowing Costs.
18. Costs that are specifically chargeable to the customer under the terms of the contract may include some general administration costs and development costs for which reimbursement is specified in the terms of the contract.
19. Costs that cannot be attributed to contract activity or cannot be allocated to a contract are excluded from the costs of a construction contract. Such costs include:
a. general administration costs for which reimbursement is not specified in the contract; b. selling costs;
c. research and development costs for which reimbursement is not specified in the contract; and d. depreciation of idle plant and equipment that is not used on a particular contract.
20. Contract costs include the costs attributable to a contract for the period from the date of securing the contract to the final completion of the contract. However, costs that relate directly to a contract and which are incurred in securing the contract are also included as part of the contract costs if they can be separately identified and measured reliably and it is probable that the contract will be obtained. When costs incurred in securing a contract are recognised as an expense in the period in which they are incurred, they are not included in contract costs when the contract is obtained in a subsequent period.
7. From the reading of above 'standard', it is clear that administrative expenses are not allocable. As per item No.19 administrative expenses are not allocable unless they are specified in the contract. Since the Revenue has not pointed out that allocation of administrative expenses are part of the contract, the Learned CIT(Appeals) was justified in excluding this item from valuation of work-in-progress. Therefore, this ground of appeal of the Revenue is rejected.
8. Regarding second ground, we note from the reading of assessment order that the Assessing Officer has not rejected the books of account and proceeded to estimate Gross Profit at 16% as against 8.9% shown by the ITA No.295/Ahd/2009 ITO vs. Sopan Infrastructure Pvt.Ltd.
Asst.Year - 2005-06 -5- assessee. No defects in the books of account have been pointed out. No reasons are advanced as to why Gross Profit declared by the assessee at 8.9% is low. The Assessing Officer proceeded to estimate the profit and make the addition without following basic principles of invoking provisions of section 145 of the I.T. Act, 1961. The Learned CIT(Appeals) deleted addition on this ground alone.
9. After hearing the parties, we decline to interfere with the order of the Learned CIT(Appeals). Before invoking the section 145 of the I.T. Act, 1961, the Assessing Officer has to necessarily reject the books of account verify the books of account. We drive support form the following judgements:-
Sl.No(s) Decision in the case of ... Reported in...
1. Madnani Corporation (2008) 296 ITR 45 Pvt.Ltd. vs. CIT (Gauhati)
2. ITO vs. Girish M. Mehta (2008) 296 ITR (AT) 125 (Raj.)
3. CIT vs. Rajnikant Dave (2006)281 ITR 06 (All.)
4. Ashole Refractories Pvt.Ltd. `(2005) 279 ITR vs. CIT 457 (Cal.)
5. Juggilal Kamlapat Udyog (2005) 278 ITR 52 Ltd. Vs. CIT (Cal.)
10. The gist of these authorities is that where assessee is maintaining books of account regularly and there is no finding given by the Assessing Officer is that income cannot be deduced form accounts regularly maintained by the assessee, then rejection of books of account or estimation of the profits thereafter will not be valid.
ITA No.295/Ahd/2009ITO vs. Sopan Infrastructure Pvt.Ltd.
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11. In view of this, the order of the Assessing Officer was rightly not upheld by the Learned CIT(Appeals). As a result, this ground of appeal of the Revenue is rejected.
12. In the result, the appeal of the Revenue is dismissed.
Order signed, dated and pronounced in the Court on 22 /01 /2010.
Sd/- Sd/-
( BHAVNESH SAINI ) ( D.C.AGRAWAL )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 22 / 01 /2010
T.C. NAIR
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals)-XIV, Ahmedabad
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad