Income Tax Appellate Tribunal - Rajkot
M/S. Ketan Construction Co.,, ... vs The Deputy Commissioner Of Income Tax, ... on 22 December, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
Before: Shri Rajpal Yadav, Judicial Member
and Shri Amarjit Singh, Accountant Member
[Conducted through E-Court at Ahmedabad]
ITA Nos. 400 & 401/Rjt/2013
A. Y. 2004-05 & 2005-06
M/s. Ketan Construction The DCIT,
Ltd. KCL, Amin Marg, Circle-1,
Rajkot Vs Rajkot
PAN: AABCK5548H (Respondent)
(Appellant)
Revenue by: Smt. Namita Khurana, Sr. D.R.
Assessee by: Shri D.M. Rindani, A.R.
Date of hearing : 07-12-2017
Date of pronouncement : 22-12-2017
आदेश /ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
These two appeals filed assessee for A.Y. 2004-05 & 2005-06, arise from order of the CIT(A)-II, Rajkot dated 23-08-2013, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
2. The assessee has raised following grounds of appeal:-
I.T.A No. 400 & 401/Rjt/2013 A.Y. 2004-05 & 2005-06 Page No 2 M/s. Ketan Construction Ltd. vs. DCIT ITA No. 400/Rjt/2013 Assessment Year 2004-05 "(1) The learned Commissioner of Income Tax (Appeals).II, Rajkot has erred in dismissing the appeal and upholding the decision of Assessing Officer in disallowing prior period expenses of Rs.1,09,447/- is unwarranted, unjustified and bad in law. (2) The learned Commissioner of Income Tax (Appeals) .II, Rajkot has erred in dismissing the appeal and upholding the decision of Assessing Officer in disallowing Rs.16,050/- in respect of RTO dimension penalty is unwarranted, unjustified and bad in law.
(3) The The learned Commissioner of Income Tax (Appeals).II, Rajkot has erred in dismissing the appeal and upholding the decision of Assessing Officer in making addition of Rs.21,420/- on account of penalty debited in Royalty expenses is unwarranted, unjustified and bad in law.
(4) The learned Commissioner of Income Tax (Appeals) .II, Rajkot has erred in dismissing the appeal and upholding the decision of Assessing Officer in disallowing Rs.
1,24,174/- u/s. 40A(3) @ 20% of Rs. 6,20,873/- u/s. 40A(2)(b) is unwarranted, unjustified and bad in law.
(5) The learned Commissioner of Income Tax (Appeals).II, Rajkot has erred in dismissing the appeal and upholding the decision of the Assessing Officer in disallowing Rs.1,04,649/- u/s. 36(1)(va) is unwarranted, unjustified and bad in law. (6) The learned Commissioner of Income Tax (Appeals).II, Rajkot has erred in dismissing the appeal and upholding the decision of the Assessing Officer in disallowing Rs.50,000/- out of Mess expenses, guest house expenses and conveyance expenses is unwarranted, unjustified and bad in law."
3. In this case, return of income was filed on 1st November, 2004 declaring income of Rs. 1,66,81,860/-. Assessment was completed u/s. 143(3) at total income of Rs. 1,72,23,760/-. Further, facts of the case are discussed along with adjudication of different grounds of appeal as under:
Claim of prior period expenes of Rs. 1,09,447
4. During the course of assessment proceedings, the assessing officer observed that assessee has debited prior period expenses of Rs. 1,09,447/- in the P & L a/c. Because of prior period nature of expenses the assessing officer has disallowed the claim of the assessee. In appeal before the ld. CIT(A), ld. CIT(A) has sustained the disallowance. We have heard rival contentions. We observed I.T.A No. 400 & 401/Rjt/2013 A.Y. 2004-05 & 2005-06 Page No 3 M/s. Ketan Construction Ltd. vs. DCIT that the assessee was following mercantile system of accounting therefore the assessee can claim the expenses in the earlier year when the expenses was carried out. Therefore, we considered that the expenses pertaining to the preceding year was not allowable. The assessee failed to explain the basis of claiming the prior period expenses during the year under consideration. After considering above facts we justify the decision of the ld. CIT(A) in upholding the disallowance made by the assessing officer. Therefore, the appeal of the assessee on this issue is dismissed.
Disallowance of Rs. 16,050/- In respect of RTO dimension and RTO expenses penalty of Rs. 21,420/-
5. During the course of penalty proceedings, the assessing officer noticed that assessee has claimed RTO dimension penalty of Rs. 16,050/- and another penalty of Rs. 21420/- under the head royalty expenses. The assessing officer held that the same were not allowable expenses. The ld. CIT(A) has sustained both these additions.
6. We have heard the rival contentions on this issue. We observed that the aforesaid nature of penalty was levied on violation of some statutory provision. We considered that penalty for violation of statutory provision is not allowable expenditure. The assessee has not contradicted the decision of lower authorities with any supporting evidences that the aforesaid penalty was not paid for violation of any statutory provision. Therefore, we do not find any reason to interfere I.T.A No. 400 & 401/Rjt/2013 A.Y. 2004-05 & 2005-06 Page No 4 M/s. Ketan Construction Ltd. vs. DCIT in the decision of the ld. CIT(A). Accordingly, the appeal of the assessee on these issues are also dismissed.
Disallowance of Rs. 1,24,174/- u/s. 40A(2)(b)
7. During the course of assessment proceedings, he assessing officer has disallowed Rs. 1,24,174/- being 20% of Rs. 6,20,873/- u/s. 40A(3) being expenses incurred in cash exceeding Rs. 20,000/- because the assessee has not made the payment by cross payee cheque. The assessee has not substantiated its claim that the impugned payment was covered under rule 6DD of the IT rule. The ld. CIT(A) has sustained the disallowance.
8. We have heard rival contentions and perused the material on record. We observed that the place where the payment was made was falling under the urban area where banking facilities was available. We find that assessee has not brought on record any evidences and circumstances to demonstrate that the payment in cash was made according to the rule 6DD of the IT rules. Therefore, we are inclined with the decision of ld. CIT(A). The appeal of the assessee is dismissed on this issue.
Disallowance of Rs. 1,04,649 u/s. 36(I)(va)
9. The assessee has not credited employees contribution to the employees account as per the due date prescribed in the relevant act I.T.A No. 400 & 401/Rjt/2013 A.Y. 2004-05 & 2005-06 Page No 5 M/s. Ketan Construction Ltd. vs. DCIT therefore,the assessing officer has disallowed the claim of contribution towards PF amounting to Rs. 1,04,649/-. The ld.CIT(A) has sustained the disallowance on the ground that assessee has not deposited the employee's contribution to the provident fund within the prescribed time.
10. We have heard rival contentions. We considered that identical issue has been decided by the jurisdictional Hon'ble High Court of Gujarat in the case of CIT vs. Gujarat State Road Transport Corporation in favour of revenue ,therefore, the appeal of the assessee is dismissed on this issue.
Disallowance of mess expenses of Rs. 50,000/-
11. During the course of assessment proceedings, the assessing officer observed that assessee has disallowed Rs. 50,000/- from various heads of expenses like mess, guest house expenses, conveyance expenses out of cumulative expenses of Rs. 40 lacs. The ld. CIT(A) sustained the same by considering that disallowances was only being 1.25% of the total expenses.
12. We have heard the rival contentions. We find that assessing officer has not detected any discrepancy in the account of assessee in respect of claim of various nature of expenses , therefore, we do not justify the decision of the Ld.CIT(A) of sustaining the addition I.T.A No. 400 & 401/Rjt/2013 A.Y. 2004-05 & 2005-06 Page No 6 M/s. Ketan Construction Ltd. vs. DCIT without specifying any reason. Therefore, the ground of appeal of assessse is allowed on this issue.
ITA No. 401/Rjt/2013 Assessment Year 2005-0613. The assessee has raised following grounds of appeal:-
"(1) The learned Commissioner of Income (Appeals).II, Rajkot has erred in dismissing the appeal and upholding the decision of the Assessing Officer regarding restricting deduction u/s. 80IA to Rs.6,35,21,741/- as against claimed at Rs.6,68,61,707/- is unwarranted, unjustified and bad in law.
2) The learned Commissioner of Income (Appeals).II, Rajkot has erred in dismissing the appeal and upholding the decision of the Assessing Officer regarding disallowing Rs. 88,842/- u/s. 40A(3) @ 20% of Rs. 4,44,210/- is unwarranted, unjustified and bad in law.
3) The learned Commissioner of Income (Appeals).II, Rajkot has erred in dismissing the appeal and upholding the decision of the Assessing Officer regarding disallowing Rs.4,34,716/- u/s. 36(1)(va) is unwarranted, unjustified and bad in law. (5) The learned Commissioner of Income (Appeals).II, Rajkot has erred in dismissing the appeal and upholding the decision of the Assessing Officer regarding disallowing Rs.50,000/- out of Mess, Staff welfare, conveyance &, guest house expenses is unwarranted, unjustified and bad in law."
14. In this case, return of income declaring income of Rs. 1,98,87,810/- was filed on 31st Oct, 2005. Return of income accompanied by an audit report as provided section 44AB of the act in the form no. 3CB and 3CD and also u/s. u/s. 80IA of the act in form no. 10CCB. Subsequently, the case was selected under u/s. 143(2) on 26th June, 2006.
Restricting deduction u/s. 80IA to Rs. 6,35,21,741 as against Rs. 6,68,61,707/-.
15. On verification of the claim of deduction u/s. 80IA, the assessing officer observed that other income of Rs. 3339966/- is not eligible for deduction u/s. 80IA and this income comprises income I.T.A No. 400 & 401/Rjt/2013 A.Y. 2004-05 & 2005-06 Page No 7 M/s. Ketan Construction Ltd. vs. DCIT under the head direct site, exchange fluctuation income, etc. which is stated as under:-
Rs.
Direct Sites
Hire Charges Income 375
Insurance Claim Income 1,128,000
Other Income 89,821
Total 1,218,196
Exchange Rate Fluctuation income
In respect of Vanthali Site 599,074
In respect of Naroda - Sampa Site 1,137,200
Total 1,736,274
SUMMARY
Other income from Direct Sites 1,218,196
Income from Bhuj Sub-let work 385,496
Exchange Rate Fluctuation income 1,736,274
Total Other Income not eligible for deduction u/s. 80IA 3,339,966
16. Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has justified the disallowance made by the assessing officer on the ground that these income was not eligible for deduction u/s. 80IA in view of the decision of the Hon'ble supreme court in the case of Liberty India (2009) 317 ITR 218.
I.T.A No. 400 & 401/Rjt/2013 A.Y. 2004-05 & 2005-06 Page No 8 M/s. Ketan Construction Ltd. vs. DCIT
17. We have heard the rival contentions and perused the material on record carefully. We have noticed that the A.O. has not included income on account of exchange rate fluctuation and insurance claim income as part of the income eligible for deduction u/s.80IA..We considered that the Hon'ble Supreme Court in case of Liberty India (2009) 317 ITR 218. held that the word 'derived from' is different from 'attributable to'. It was held in the aforesaid decision that only those incomes which have a direct nexus to the main activity are eligible for deduction. Those incomes which have no direct nexus with the main activity are not eligible for deduction u/s.80IA. After considering the facts and the legal findings, we justify the decision of the Ld. CIT(A) in sustaining the disallowance made by the assessing officer. Therefore, this ground of appeal of the assessee is dismissed.
18. In respect of remaining grounds of appeal for assessment year 2005-06, our findings in respect adjudication of identical grounds of appeal for assessment year 2004-05 will be applicable.
19. In the result, both the appeals of the assessee are partly allowed.
Order pronounced in the open court on 22-12-2017 Sd/- Sd/-
(RAJPAL YADAV) (AMARJIT SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad : Dated 22/12/2017
I.T.A No. 400 & 401/Rjt/2013 A.Y. 2004-05 & 2005-06 Page No 9
M/s. Ketan Construction Ltd. vs. DCIT
आदेश क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order,
Assistant Registrar,
Income Tax Appellate Tribunal,
Rajkot