Income Tax Appellate Tribunal - Hyderabad
M/S Aditya Housing & Infrastructure ... vs Department Of Income Tax on 28 May, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. 959/Hyd/2013
Assessment Year 2009-10
The Deputy CIT vs. M/s. Aditya Housing &
Circle-1(1) Infrastructural Development
Hyderabad Corporation Pvt. Ltd.
Hyderabad;
PAN: AAFCA9790B
Appellant Respondent
Appellant by: Sri D. Sudhakar Rao
Respondent by: Sri K.A. Sai Prasad
Date of hearing: 28.05.2014
Date of pronouncement: 28.05.2014
ORDER
PER CHANDRA POOJARI, A.M.:
This appeal by the Revenue is directed against the order of the CIT(A)-II, Hyderabad dated 28.3.2013.
2. The Revenue raised the ground the CIT(A) erred in deleting the disallowance made u/s. 40(a)(ia) of the Act at Rs.
16,05,80,987.
3. Brief facts of the case are that the assessee is a company engaged in the business of construction and sale of flats filed its return of income on 30.09.2009 admitting a total income of Rs. 59,68,667. The return was processed u/s 143(1) of IT Act, and the case was selected for scrutiny u/s 143(2) and the 2 ITA No. 959/Hyd/2013 M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd.
=========================== assessment was completed on a total income of Rs.
19,96,85,500. The assessee is in the business of construction and sale of flats and the expenditure incurred towards construction during the year was Rs. 170,61,37,363 and the sales accounted were Rs. 30,24,50,000 and an amount of Rs.
23.38 crores as cost of the sales. The balance of Rs. 1189.09 crores [Rs. 1041.18 crores (Opening Balance) + Rs. 170.61 crores [construction expenditure incurred during the year - Rs. 30.24 crores shown as sales during the year] was shown as closing work in progress. During the assessment proceedings, the Assessing Officer noted that out of the project expenses of Rs. 1212,47,48,985 the assessee incurred interest expenditure payable to M/s. Vinamra Universal Traders Pvt. Ltd. (Rs.
15,36,78,432), and to UIOF (Rs. 69,02,055), Architect fee (Rs. 1,75,18,008) to Genesis & Premnath and Consultancy charges (Rs. 30,70,394) and no TDS was made from the above, said credits. The Assessing Officer observed that the above amount of Rs. 18.11 crores was in the nature of revenue and the expenditure was incurred in the year under consideration since no tax was deducted at source the provisions of section 409(a)(ia) of the Act are clearly attracted. After taking into account the objections raised by the assessee and also the disallowance made by the assessee itself of Rs. 34,96,560 the Assessing Officer disallowed Rs. 17,76,72,329 u/s.40(a)(ia) of the Act. The Assessing Officer also noted that the assessee did not deduct tax at source from the payments made to sub-
3 ITA No. 959/Hyd/2013M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd.
=========================== contractors amounting to Rs. 83,07,258 and disallowed the said amount of Rs. 83,07,258 u/s.40(a)(ia) of the Act.
4. On appeal, the CIT(A) observed that since the assessee has not debited the said amount to the Profit and Loss A/c., the provisions of section 40(a)(ia) cannot be invoked on the expenditure not debited to the Profit and Loss A/c. Further, he observed that as per the facts the assessee has incurred in all Rs. 1212, 47,48,985 as project expenditure up to 31.3.2009 as deductible expenditure at Rs. 23,38,41,519 i.e., 1.93% only and the balance of Rs. 1189,09,04,466 is treated as inventory (work-in-progress) under the head current assets.
5. The CIT(A) observed that the expenditure which was not claimed by the appellant in the P&L Account cannot be disallowed. As per the facts, the assessee had incurred in all Rs. 1212,47,48,985/- as project expenditure up to 31.03.2009 and out of the said sum the amount charged to P&L Account for the year ending 31.03.2009 as deductible expenditure is Rs.
23,38,41,519 i.e., 1.93% only and the balance of Rs. 1189,09,04,466 is treated as inventory (work-in-progress) under the head current assets. The items on which tax at source was not deducted and otherwise disallowable u/s. 40(a)(ia) (which formed part of Rs. 1212,47,48,985 i.e., the total project cost) amounted to Rs. 18,94,76,147. The break-up of which is as under:
4 ITA No. 959/Hyd/2013M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd. =========================== Rs.
1. M/s. Vinamra Universal Interest Liability 15,36,78,432 Traders Pvt. Ltd.
2. UIOF Interest Liability 69,02,055
3. Genesis & Premnath Architect fee advance 1,75,18,008
4. Consultancy Fee charges 30,70,394
5. Project expenses Sub contractors 83,07,258 Total 18,94,76,147
6. The CIT(A) held that the proportionate disallowance at 1.93% should be worked out on the total amount of Rs.
18,94,76,147 (including sub-contract payments which were part of the total project cost) and this works out to Rs. 36,56,890. Since the assessee has already disallowed Rs. 34,96,560 as noted by the Assessing Officer at para 9.0 of the assessment order, the disallowance to the extent of Rs. 1,60,329 (Rs. 36,56,890 - Rs. 34,96,560) only could be made and the addition is confirmed only to that extent and the balance amount of Rs. 18,58,19,257 (18,11,68,889 + 83,07,258
- 36,56,890) is ordered to be deleted. However, in view of the decision of the Hon'ble Mumbai Tribunal in the case of Savala Associates vs. ITO (35 SOT 148) (Mum) which has been followed by the ITAT Hyderabad, the Assessing Officer is directed to correct the amount of work-in-progress by taking into account the amount disallowable as per the provisions of section 40(a)(ia) of the Act and to consider such corrected work-in-progress finally in the P&L Account j Contract Account for the year in which the work is completed or in the year in which the TDS deductible is paid by the assessee. Against this, the Revenue is in appeal before us.
5 ITA No. 959/Hyd/2013M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd.
===========================
7. The learned DR submitted that though the assessee has not claimed this as an expenditure in the Profit and Loss A/c. and shown it as an inventory in the Balance Sheet it will have the deeming effect on the profit of the assessee. Being so, the disallowance should be made by taking into consideration all provisions of section 40(a)(ia) of the Act. Further, he relied on the judgement of Supreme Court in the case of Attar Singh Gurmukh Singh vs. ITO (191 ITR 667) (SC) wherein held that word "expenditure" has not been defined in the Act. It is a word of wide import. Section 40A(3) refers to the expenditure incurred by the assessee in respect of which payment is made.
It means that all outgoings are brought under the word "expenditure" for the purpose of the section. The expenditure for purchasing stock-in-trade is one of such outgoings. The value of the stock-in-trade has to be taken into account while determining the gross profits under section 28 on principles of commercial accounting. The payments made for purchases would also be covered by the word "expenditure"
8. According to the learned DR, in view of the above judgement of the Supreme Court the provisions of section 40(a)(ia) should be applied in the present case also.
9. The learned AR submitted that the observations of the Assessing Officer are factually incorrect and not legally justified which are as under:
6 ITA No. 959/Hyd/2013M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd. =========================== Para AO observations Assessee submissions 4.0 Two methods of Assessing Officer himself accepted that both presentation of Profit & types of presentation are valid. Hence what is Loss a/c. to be seen is what is actually claimed as expenses. By no stretch of imagination one can say that the entire expenses is claimed as deduction in this year itself by the assessee. 5.0 Sale recognition This is factually incorrect. The sale is on execution of sale recognized not only on the basis of execution deed only of sale deed, but also on the receipt of more than 50% of the sale consideration. In fact for some villas even though sale deed was not executed, the sale was recognized, since the assessee received major portion of agreed sale price. Assessing Officer is trying to project the case as if the Assessee is avoiding tax. In any case these observations have no bearing on the issue on hand.
5.1 No separate books This will not alter or effect the contentions on the issue. The expenditure is recognized on percentage basis and Assessing Officer himself has accepted the book results but for the technical additions u/s. 40(a)(ia). 7.0 Disallowance will have The itself provided that if some expenditure is effect in the next year disallowed u/s. 40(a)(ia) for non payment of TDS, the same should be allowed in the year of payment.
8.0 Regarding non Assessee argument is now upheld by the application of sec 40(a)(ia) Special Branch in the case of Merilyn to expenditure actually Shipping & Transports, Vizag 136 ITD 23 SB.
paid
10. The AR submitted that It was submitted that the Assessing Officer's detailed observations are mostly devoid of merits and some of the discussions are totally irrelevant for deciding the issue on hand. In fact the Assessing Officer has accepted the book results and merely made the technical disallowance u/s. 40(a)(ia). With regard to the issue of disallowance u/s. 40(a)(ia), it was submitted that the disallowance can be made only if the assessee claims something as expenditure. What is to be seen is whether the entire amount referred to in para 3 was claimed as expenditure in this year. The answer is a definite no. Only 1.93% of the same was claimed as expenditure against sales of Rs.
30,24,50,000 during the year as part of total recognized expenditure of Rs. 23,38,41,519. As submitted in detail in 7 ITA No. 959/Hyd/2013 M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd.
=========================== earlier paras the amount attracting the provisions of sec.
40(a)(ia) and included in Rs. 23,38,41,519 is Rs. 34,96,560 only which as accepted by Assessing Officer was already disallowed by assessee in his return of income. Hence, it is submitted that what is not claimed as expenses cannot be disallowed u/s.
40(a)(ia). It is not out of place to submit that the provisions of sec 40 refer to Amounts Not Deductible." The assessee relied on the decisions of the ITAT, Hyderabad in the cases of Narne Construction (P) Ltd. in ITA No. 1462 & 1463/H/2011 dt.
25.01.2012 and also in the case of Godavari Developers in ITA No. 918/H/2011.
11. The AR submitted that as per the P&L A/ c. and Balance Sheet filed the assessee made a note in the P&L A/c saying "the rationale for doing so is that in the 2008-09, we are transferring only 1.93% of the total cost incurred. The expenditure on which TDS is not paid is part of the total cost incurred till date, from which the cost is being recognized in the C.Y. Hence, only that portion of expense should be disallowed which is being claimed against revenue in AY i.e., 1.93% of the expense. The assessee's Profit and Loss Account and Balance Sheet were prepared and audited by statutory auditors and the method of accounting is accepted by the Assessing Officer. For non-adherence to the TDS provisions remedy u/s. 201(1) and 201(lA) of the LT. Act, 1961 is available and the TDS Assessing Officer has taken action under sections 201(1) and 201(lA) of the Act for the F.Y. 2008-09 and levied 8 ITA No. 959/Hyd/2013 M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd.
=========================== interest u/s. 201(1) & 201(lA) vide order dated 16.07.2012 raising a demand of Rs. 1,61,93,580/-.
12. The AR submitted that the Assessing Officer did not reject the method of accounting followed by the assessee and he accepted the income returned by the assessee but however, he disallowed the expenditure on account of interest liability, Architect Fee and consultancy charges under section 40 (a)(ia) on the ground that no tax was deducted at source. The provisions of section 40(a)(ia) of the Act are as under:
"40. Notwithstanding anything to the contrary in sections 30 to [38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession,-
(ia) Any interest, commission or brokerage, [rent, royalty,] fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-
contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, [has not been paid on or before the due date specified in sub- section (1) of section 139 :] [Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted during the previous year but paid after the due date specified in sub-section (1) of section 139, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid."
9 ITA No. 959/Hyd/2013M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd.
===========================
13. The AR submitted that as per the above provision, only that expenditure which has been claimed by the assessee shall not be allowed as deduction if the assessee did not deduct tax at source as per Chapter-XVII B of IT. Act, 1961. In the present case, the assessee has been following project completion method as per which it has recognized the income in respect of sales executed and the proportionate expenditure has been claimed and the balance cost of construction has been treated as work in progress and the same has been transferred to the Balance Sheet. Section 40(a)(ia) applies only to those payments on which tax is deductible at source and is not deducted or deducted but not deposited to the government account by the deductor and if these payments are claimed as expenditure in the profit and loss account and not otherwise. When the assessee did not claim the entire liability/expenditure by debiting it to its profit and loss account, the question of disallowance of the entire expenditure by invoking the provisions of section 40(a)(ia) does not arise.
14. Further, the AR relied on the order of the co-ordinate Bench in the case of Egwood Industries Pvt. Ltd. vs. DCIT (ITA No. 1230/Hyd/2013 & Anr) order dated 13.12.2013 wherein held that :
"7. We have heard both the parties and perused the material available on record. We find that the facts in the instant case are similar to that one which was decided by the Coordinate Bench of this Tribunal in the case of M/s. Narne 10 ITA No. 959/Hyd/2013 M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd. =========================== Constructions (P) Ltd. in ITA. No. 1462 & 1463/Hyd/2011 for the assessment year 2004- 2005 by order dated 25.01.2012 wherein the Tribunal observed as follows :
"10. We have heard both the parties on this issue. The contention of the assessee is that this item has not been debited to Profit and Loss a/c and this has been shown in the balance sheet and it cannot be considered for allowance or disallowances. We find force in the contention of the assessee's counsel that unless the assessee claims this item as expenditure / payment, the A.O. cannot allow or disallow the same. In that circumstances, we set aside this issue to the file of the A.O. to examine whether this is an expenditure/payment claimed by the assessee in the profit and loss account or shown as an item in the balance sheet. In the event, if it is claimed as an expenditure, the A.O. could disturb the same and disallow an expenditure claimed in the P & L a/c. to the extent of 10%, which, in our opinion, is reasonable. On the other hand, if it is balance sheet item, the A.O. is precluded from doing so."
8. The above view has been further followed by the Coordinate Bench of this Tribunal in the case of M/s. Godavari Developers in ITA No. 918/Hyd/ 2011 dated 31st October, 2012.
9. In the present case before us, no claim of expenditure has been made in the profit and loss account and we have verified the same from the profit and loss account for the year ending 31st March, 2007 at page 3 of the paper book where rent has not been claimed under the head "Expenditure" and we are convinced that the assessee is only an intermediary. Hence, applying the ratio of the decision in the case of Godavari 11 ITA No. 959/Hyd/2013 M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd.
=========================== Developers (supra), we allow the assessee's appeal."
15. Further, the AR relied on the order of the co-ordinate Bench in the case of DCIT vs. M/s. S.P. Real Estate Developers Pvt. Ltd. (ITA No. 866/Hyd/2010 & Anr) order dated 12.2.2014:
"52. With regard to disallowance u/s. 40(a)(ia) of the Act, we are inclined to direct the AO not to disallow the expenditure if TDS has been remitted by the assessee before due date of filing of the return of income as held by the Hon'ble Andhra Pradesh High Court in the case of CIT vs. PEC Electricals Pvt. Ltd. in ITA No. 263 of 2013 dated 12.7.2013. The Hon'ble High Court held as under:
"With regard to the next question, the Tribunal by following the decision of the Kolkata High Court in CIT vs. Virgin Creations (GA No. 3200/2011), wherein it has been held that the amendment to the provisions of section 40(a)(ia) is retrospective in operation and consequently in respect of any payment of TDS made before the due date for the filing of the return of income, the provisions of section 40(a)(ia) cannot be invoked. Therefore, we do not find any reason to see that any further decision on this point is required by this Court."
53. Further, we also make it clear that if the expenditure is not debited to Profit and Loss A/c., the same could not be disallowed by invoking the provisions of section 40(a)(ia) of the Act. Accordingly, this issue is remitted back to the file of the AO to decide the issue afresh in the light of our above observations. This ground is partly allowed for statistical purposes."
12 ITA No. 959/Hyd/2013M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd.
===========================
16. We have heard both the parties and perused the material on record. In this case as seen from the Profit and Loss A/c., the assessee had debited an expenditure of Rs.
23,38,41,519 out of total expenditure of Rs. 1212,47,48,985 and carried an amount of Rs. 1189,09,04,466 as work-in-
progress in Balance Sheet. In other words, the assessee has not claimed this amount of Rs. 16,05,80,987 as an expenditure in the Profit and Loss A/c. In our humble opinion, unless and until the assessee claimed this as an expenditure while computing the income, the provisions of section 40(a)(ia) of the Act cannot be invoked.
17. The CIT(A) placed reliance on the decision of the ITAT, Hyderabad in the case of ACIT vs. Godavari Developers in ITA No. 918/Hyd/2012 dated 31.10.2012. In this case the Tribunal followed the decision of the Tribunal Mumbai 'J' Bench in the case of ITO vs. Savala Associates (cited supra) where it has been held that -
"In principle, one agrees with the above view of revenue that in case of 'completed contract method' the AO is empowered to examine the expenditures incurred during the year which increases the opening work-in-progress or addition in work-in-progress. But one does not agree with the view of revenue that addition is to be made in total income, if some expenditure were found not allowable. The correct procedure in 'completed contract method' is that instead of making addition, the AO should correct the amount of work-in-progress by reducing or enhancing work- in-progress as the case may be.13 ITA No. 959/Hyd/2013
M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd. =========================== Such corrected WIP will be finally considered in P&L a/c /contract account for the year in which work is completed. The result of calculation of correct profit in case of 'completed contract method' could be attained by this procedure. In the case under consideration, the AO made addition in all the projects including incomplete projects, which is not warranted."
18. The CIT(A) also placed reliance on the decision of ITAT Hyderabad in the case of M/s. Narne Constructions Pvt. Ltd. in ITA Nos. 1462 & 1463/Hyd/2011 dated 25.01.2012 where it has been held that "We have heard both the parties on this issue. The contention of the assessee is that this item has not been debited to Profit & Loss A/c and this has been shown in the balance-sheet and it cannot be considered for allowance or disallowances. We find force in the contention of the assessee's counsel that unless the assessee claims this item as expenditure, the assessing officer cannot allow or disallow the same. In the circumstances, we set aside this issue to the file of the assessing officer to examine whether this is an expenditure claimed by the assessee in the Profit & Loss A/c or shown as an item in the balance- sheet. In the event, if it is claimed as an expenditure, the assessing officer could disturb the same and disallow an expenditure claimed in the P & L A/c to the extent of 10%, which, in our opinion, is reasonable. On the other hand, if it is Balance-sheet item, the assessing officer is precluded from doing so."
19. The view of the CIT(A) is in conformity with the above decisions of the Tribunal.
14 ITA No. 959/Hyd/2013M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd.
===========================
20. Further, same view was taken by the co-ordinate Bench in the case of SP Real Estate Developers Pvt. Ltd. (cited supra) and also Egwood Industries Pvt. Ltd. (cited supra).
21. The learned DR, on the other hand, tried to distinguish the above judgements and drew our attention to the judgement of Supreme Court in the case of Attar Singh Gurmukh Singh (cited supra). The judgement relied on the learned DR is on the applicability of provisions of section 40A(3) of the Act in respect of payment made to a person in a day otherwise than by a account payee cheque drawn on a bank or account payee bank draft exceeding Rs. 20,000, no deduction can be made in respect of such expenditure. On the other hand, section 40(a)(ia) is with regard to disallowance in respect of payments where the assessee failed to deduct TDS. These two sections are not para materia. Being so, we are inclined to decide the issue in favour of the assessee and against the Revenue.
22. In the result, Revenue appeal in ITA No. 959/Hyd/2013 is dismissed.
Order pronounced in Open Court on 28th May, 2014 Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Hyderabad, dated the 28th May, 2014 tprao 15 ITA No. 959/Hyd/2013 M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd.
=========================== Copy to:
1. The Deputy CIT, Circle-1(1), 4th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
2. M/s. Aditya Housing & Infrastructure Development Corporation Pvt. Ltd., P. No. A/12, Chandralok Complex Road, No. 2, Film Nagar, Jubilee Hills, Hyderabad.
3. The CIT(A)-II, Hyderabad.
4. The CIT-I, Hyderabad
5. The DR, B Bench, ITAT, Hyderabad.