Amarshiv Construction Pvt. Ltd.,, ... vs Department Of Income Tax

ी एन0एस0 सैनी, लेखा सद य एवं ी कुल भारत, या%यक सद य के सम& BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER आयकर अपील सं./ ITA No.1929/Ahd/2010 %नधा)रण वष)/Assessment Year: 2004-05

DCIT, Amarshiv Construction P. Circle-1(1), Vs Ltd., Baroda. 14, Atul Park Society, Karelibaug, Baroda. PAN : AACCA 3235 E

आयकर अपील सं./ ITA No.258/Ahd/2013 %नधा)रण वष)/Assessment Year: 2009-10

Amarshiv Construction P. Ltd., DCIT, 14, Atul Park Society, Vs Circle-1(1), Karelibaug, Baroda. Baroda. PAN : AACCA 3235 E

अपीलाथ,/ (Appellant) -.यथ,/ (Respondent)

Revenue by : Shri M.K. Singh, Sr. D.R. Assessee(s) by: Shri M.K. Patel, A.R.

सन ु वाई क तार ख/ Dateof Hearing : 08/04/2015 घोषणा क तार ख / Date of Pronouncement: 30/04/2015

आदे श/O R D E R

PER SHRI N.S. SAINI, ACCOUNTANT MEMBER:

These are cross appeals filed by the Revenue and assessee against the order of CIT(A)-I, Baroda dated 17.03.2010.

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2. In ground no.1 of the appeal, the grievance of the Revenue is that the CIT(A) erred in deleting the addition of Rs.39,17,182/- made under section 41(1) of the Act in respect of amount of creditors remained unpaid for more than 3 years.

3. The brief facts of the case are that the A.O. observed during the course of assessment proceedings that there were outstanding balances in the case of four creditors which remained unpaid for more than 3 years, the details of which are as under :-

1) Ganesh Carting : Rs.29,57,645/- 2) Jivanlal Joitaram Patel : Rs.1,67,082/- 3) Shiv Construction Company : Rs.3,09,602/- 4) B.D. Patel & Co. : Rs.4,82,852/-

4. He observed that the obligation of the assessee to make the payment stood extinguished due to expiry of the limitation period of three years and, therefore, he made addition of Rs.39,17,182/- to the total income of the assessee by invoking provisions of section 41(1) of the Act.

5. Before the CIT(A) the assessee argued that these amounts were outstanding for more than one year and assessee continued to show the same in its books of account and, therefore, it acknowledged the liability to make the payment, hence section 41(1) of the Act was not applicable. The assessee had not received any benefit by way of remission or cessation of liability. CIT(A) observed that Section 18 of the Limitation Act, 1963, provides that "where a debt is acknowledged in writing before the expiry of limitation period, this would amount to sufficient acknowledgement and fresh limitation shall be computed from the time when such acknowledgement is made". It was held that the liabilities were not barred by limitation and, therefore, held that the ITA No.1929/Ahd/2010 & 258/Ahd/2013 Amarshiv Construction Pvt. Ltd.

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CIT(A) was not justified in adding the same under section 41(1) of the Act.

6. Departmental Representative has relied on the order of the A.O.

7. Before us, the Authorised Representative of the assessee supported the order of the CIT(A) and relied on the decision of Hon'ble High Court of Gujarat in the case of CIT vs. Nitin S. Garg reported in [2012] 22 taxmann.com 59 (Guj.) and submitted that the Hon'ble High Court has held that where the assessee had continued to show the admitted amounts as liabilities in its balance sheet, the same cannot be treated as a case of cessation of liabilities. Merely because liabilities are outstanding for last many years, it cannot be inferred that the said liabilities had ceased to exist. The A.O. shall have to prove that the assessee has obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof which is not the case before us. Merely because the assessee obtained benefit of reduction in the earlier years and balance is carried forward in the subsequent year, it would not prove that the trading liabilities of the assessee have become non existent.

8. We have heard the rival submissions and perused the orders of the lower authorities and material available on record. In the instant case the assessee has shown outstanding credits of Rs.39,17,182/- in the name of 4 persons. The A.O. found that these liabilities are unpaid for more than three years, accordingly he held that there was cessation of liability and by invoking section 41(1) of the Act made addition of Rs.39,17,182/- to the income of the assessee. On appeal, the CIT(A) deleted the addition on the ground that the assessee has shown liabilities in its books of account and, therefore, the limitation period will start from the time when such acknowledgement is made in the books ITA No.1929/Ahd/2010 & 258/Ahd/2013 Amarshiv Construction Pvt. Ltd.

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of account by it. It was, therefore, held that the liability was existing one.

9. We find that no material was brought on record by the revenue to show that the liabilities ceased to exist and the assessee has obtained the benefits in respect of such liabilities by way of Remission or cessation thereof. Further it has been admitted by the Revenue that the assessee has not written off the outstanding liabilities in the books of account. In the above facts and circumstances of the case, the decision of the Hon'ble High Court of Gujarat in the case of CIT vs. Nitin S. Garg (supra) squarely applies. Therefore, we confirm the order of CIT(A) and dismiss this ground of appeal of the Revenue.

10. Ground no.2 of the appeal of the Revenue is directed against the order of CIT(A) in deleting the addition of Rs.2,39,642/- on account of excessive payments made for purchase of metal from the person specified under section 40A(2)(b) of the Act.

11. The brief facts are that the assessee is engaged in the business of construction of roads. The A.O. found that the assessee has purchased metal from M/s MRB Builders Pvt. Ltd. at an average price of Rs.120/- per MT and grit @ Rs.120/- per MT. He observed that M/s MRB Builders Pvt. Ltd. was the person specified under section 40(a)(2)(b) of the Act. He also observed that metal was purchased by the assessee from M/s Amar Mining Company who was not a related party at the average price of Rs.107.50 per MT and grit at Rs 87.50 per MT. In reply to the show cause, the assessee submitted that the purchases made from M/s MRB Builders Pvt. Ltd. and Amar Mining Company were at the rates charged by those parties even from other purchasers. There was no inflation of purchase price. It was also submitted that both M/s MRB Builders Pvt. Ltd. and Amar Mining Company were paying tax at the same rate as the assessee. However, the explanation of the assessee was not accepted ITA No.1929/Ahd/2010 & 258/Ahd/2013 Amarshiv Construction Pvt. Ltd.

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by the A.O. who held that the fair market price was Rs.87.50 against which purchases were made @ Rs.120/- per MT. Therefore, the purchases were held to have been inflated by Rs.32.5 per MT, i.e. 27% over and above the fair market value. Hence 27% of Rs.14,45,366/-, i.e. Rs.3,90,249/- was added to the income of the assessee.

12. On appeal before the CIT(A), it was argued that the A.O. has made improper comparison since the difference had been computed between Rs.120/- and Rs.87.50/- whereas proper comparison should have been between Rs 120 and 107.50.

13. The CIT(A) after considering the submission of the assessee held that metal was purchased from Amar Mining Company @ Rs.107.50 and grit was purchased at 87.50. From M/s MRB Builders Pvt. Ltd. The purchases of metal and grit were both @ Rs.120/- per annum. Hence the comparison between the purchase price from Amar Mining Company of grit with the purchase price from M/s MRB Builders Pvt. Ltd. of metal was not comparable. However, he held that the assessee was unable to show what was the fair market rate of metal and grit by way of sales instances of unrelated parties dealing in these items, hence he held that the A.O. was justified in treating the payment towards purchase of metal and grit from M/s MRB Builders Pvt. Ltd. as excessive. He observed that excessive amount paid was Rs.12.5 per MT (Rs.120/- less Rs.107.50 per MT) i.e. 10.42%. Applying this rate to the total purchases of Rs.14,45,366/-, he restricted the addition to the extent of Rs.1,50,607/- and deleted the balance amount of addition of Rs.2,39,642/-

14. Before us, the Departmental Representative supported the order of A.O. whereas the Authorised Representative supported the order of CIT(A).

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15. We find that according to the AO, the assessee has purchased metal at an excessive rate of 12.50 per MT. and grit at an excessive rate of 32.50 per MT from M/s MRB Builders Pvt. Ltd. than its fair market value. Thus, according to the AO, both the items were purchased by the assessee at the rate of Rs.120/- per MT from M/s MRB Builders Pvt. Ltd. and consequently purchases were in excess at the rate of 27% in respect of grit and at the rate of 10.42% in respect of metal. However, the AO disallowed 27% of total purchases which worked out to Rs.3,90,249/- as excessive purchase price paid to relatives.

16. On appeal, the CIT(A) restricted the disallowances at the rate of 10.42% of total purchases which worked out to Rs.1,50,607/-.

17. According to us, the lower authorities should have disallowed at the rate of 27% of purchase of metal from M/s MRB Builders Pvt. Ltd. and at the rate of 10.42% on purchases of grit from M/s MRB Builders Pvt. Ltd. Thus, both the lower authorities were not justified in their action. We find that the bifurcation of total purchases of Rs.14,45,366/- as to how much for metal and how much was for grit has not been brought on record by either of the lower authorities and by either of the parties before us. We, therefore, set aside the orders of the lower authorities, and restore the matter to the file of the AO with direction to restrict the disallowance under section 40A(2) (b) to the extent of 27% in respect of purchases of metal from M/s MRB Builders Pvt. Ltd. and at the rate of 10.42% in respect of purchases of grit from M/s MRB Builders Pvt. Ltd. Thus, this ground of appeal of the Revenue is partly allowed for statistical purpose.

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18. In ground no.3, the grievance of the Revenue is that the CIT(A) erred in deleting the addition of Rs.8,55,313/- made on account of gratuity payment, legal & professional fees and misc. expenses.

19. The brief facts of the case are that the A.O. made disallowance of following expenses:-

1. Gratuity 4,00,613

2. Legal & Professional Fees 3,35,662/-

3. Misc & Office Expenses 19,385

4. Motor Cycle Expenses 19,677

5. Postage & Telegram 3,559

6. Travelling & Conveyance Expenses 76,417 Total 8,55,313

20. The A.O. observed that gratuity was paid directly to the employees and not to any approved gratuity fund and, therefore, he disallowed deduction for the same. With regard to the other expenses, the A.O. observed that increase in the expenditure over the earlier year was not properly explained.

21. In appeal before the CIT(A) the assessee contended that the disallowance was made on adhoc basis without pointing out any specific defects. Books of account had been audited and tax audit report had been duly enclosed along with the return. No defect in the claim of expenses relating to the above amount was pointed out either by Auditor or by the A.O. himself. It was submitted that the payment of gratuity was ex gratia payment and was not required to be made through an approved gratuity fund. The increase in other expenses was a normal increase on account of increase in petrol, stationery, tickets etc. Legal and professional fees increased since the bills were presented by the advocates in respect of arbitration claims and other legal matters and the hearings in the court were held during this financial year only.

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22. The CIT(A), after considering the submissions of the assessee and the facts of the case, observed that in order to make sustainable disallowance, it must be shown on the basis of some material on record that the claim made by the assessee was incorrect or fraudulent. Accounts of the assessee are audited and the auditor has certified the correctness of the claim of the expenses. Hence, without any material, it would be incumbent on the A.O. to accept the claim. In the absence of any material defects in the claim, in his opinion, the A.O. was not justified in making the disallowance of Rs.8,55,313/- and, therefore, he deleted the same.

23. The DR merely supported the order of the AO and could not point out any specific error in the findings of the CIT(A). We find that disallowance made by the AO for the reasons stated in the assessment order cannot be sustained. We, therefore, do not find any good and justifiable reason to interfere with the order of the CIT(A), which is hereby confirmed and the ground of appeal of the Revenue is dismissed.

Assessee's appeal

24. In assessee's appeal ground nos.1 to 3 are directed against the order of CIT(A) holding that retention money of Rs.27,81,076/- accrued to the assessee company during the previous year to A.Y. 2009-10.

25. The brief facts of the case are that the A.O. observed that the assessee company while computing its income from business deducted an amount of Rs. 27,81,076/- from the net profit arrived at as per Profit & Loss Account. This amount represented retention money/security deposits returned by persons for whom the assessee had undertaken contract work during the year. In reply to the show cause notice, the ITA No.1929/Ahd/2010 & 258/Ahd/2013 Amarshiv Construction Pvt. Ltd.

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assessee submitted that it was engaged in the business of construction of civil works, dams, roads etc. The company had undertaken work for various government agencies who had retained security deposits with them. The amount of Rs.27,81,076/- was withheld by government agencies pending verification of satisfactory completion of work. The assessee has claimed deduction of these amounts as right to receive the said amount had not accrued to the assessee company till satisfactory completion of work and removal of defects. The assessee placed reliance on the decision of Hon'ble Calcutta High Court in the case of Commissioner of Income-Tax vs. Simplex Concrete Piles (India) P. Ltd., (1986) 179 ITR 8 The A.O. did not accept the explanation of the assessee on the ground that this was a recurring issue and in A.Ys. 1992-93 and 1993-94 the Tribunal had decided the issue in favour of the Revenue and assessee's appeal before the Hon'ble High Court of Gujarat was pending adjudication.

26. On appeal, the CIT(A) confirmed the action of the A.O.

27. Before us the Authorised Representative of the assessee submitted that the Hon'ble Gujarat High Court has decided the issue in favour of the assessee in its own case for A.Y. 1992-93 which is reported at [2014] 45 taxmann.com 429 (Guj.) It was, therefore, his submission that following the same, the ground of appeal of the assessee should be allowed.

28. On the other hand, Departmental Representative fairly conceded that the issue is now covered in favour of the assessee by the decision of Hon'ble Gujarat High Court in assessee's own case in the A.Y. 1992-

93.

29. After considering the rival submissions and perusing material available on record, we find that it is not in dispute that the assessee ITA No.1929/Ahd/2010 & 258/Ahd/2013 Amarshiv Construction Pvt. Ltd.

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had not included retention money of Rs.27,81,076/- in its income on the ground that the money will be received after satisfactory completion of work and removal of defects. Till that time the right to receive the amount did not accrue to the assessee. We find that the Hon'ble High Court of Gujarat in the case of the assessee itself in A.Y. 1992-93 held as under:-

"Where assessee was awarded a construction contract and in terms of contract certain amount was withheld by employer of contract towards retention money for satisfactory execution of contract by assessee, retention money was to be taxed in assessment year relevant to 'previous year' in which it became payable to assessee as per terms of contract i.e., after defect liability was over and after engineer-in-charge certified that no liability was attached to assessee"

30. Respectfully following the decision of Hon'ble Gujarat High Court (supra), we delete the addition of Rs.27,81,076/- and allow these grounds of appeal.

31. In ground no.4 of the appeal the grievance of the assessee is that the CIT(A) erred in confirming the disallowance of Rs.10,000/-.

32. The brief facts of the case are that the assessee claimed deduction of Rs.10,000/- under the head voluntary retirement expenses. According to the assessee, the expenses were payable to the employees on retirement/resignation. He observed that the expenses are not covered under section 35DDA and same had been disallowed in preceding years. There was no scheme for voluntary retirement with the company for which assessee's expenditure was allowable under section 35DDA. Therefore, the same was disallowed by the A.O. and was confirmed in appeal by the CIT(A).

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33. At the time of hearing, the Authorised Representative of the assessee submitted that he is not pressing this ground of appeal and hence the same is dismissed for want of prosecution.

34. Ground no.5 of the appeal of the assessee is directed against the of CIT(A) confirming addition of Rs.2,81,124/- under section 40A(2)(b) of the Act.

35. The brief facts of the case are that the assessee claimed commission paid to Samrat Trading Corporation, Proprietor Ashok M. Patel (HUF) of Rs.2,81,124/-. A.O. observed that the assessee failed to prove the genuineness of payment of commission where the Karta of HUF has already died in March 2000.He also observed that similar addition was made in the case of the assessee in A.Y. 2004-05 which was upheld by the CIT(A) vide his order dated 17.03.2010. Therefore, he confirmed the disallowance made by the A.O.

36. Authorized Representative of the assessee submitted that in the A.Y. 2004-05 the disallowance made by the A.O. for commission payment was confirmed in appeal by the CIT(A) and the assessee has not preferred any further appeal to the Tribunal there against. In view of the above submission of the AR of the assessee, we find no infirmity in the order of CIT(A) which is hereby confirmed and thus this ground of appeal of the assessee is dismissed.

37. Ground no.6 of the appeal is directed against the order of CIT(A) confirming disallowance of Rs.2,33,648/-.

38. The brief facts of the case are that the A.O. observed from the balance sheet of the assessee that it had advanced money to various parties and out of these advances the assessee has also advanced money to M/s Amarshiv Engineering Co. on which no interest was ITA No.1929/Ahd/2010 & 258/Ahd/2013 Amarshiv Construction Pvt. Ltd.

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charged. He also observed from the ledger account that these advances were made in earlier years and during the year there was no transaction with these companies. Further the concern is owned by the related persons to the directors of the company. A.O. further observed that in the P&L Account, the assessee has claimed interest payment on loan funds which have increased to Rs.3,97,88,062/- from the earlier year at Rs.2,62,68,595/-. It was also observed by him that interest and finance charges were shown at Rs.6,90,053/- and that the advance of Rs.19,47,070/- was made to M/s Amarshiv Engineering Co. Therefore, the A.O. computed the disallowance of interest @ 12% which according to him was the bank interest rate prevailing during the year and thereby made disallowance of Rs.2,33,648/- out of interest expenditure. The A.O. also mentioned that the assessee has agreed to the disallowance of interest on advance to M/s Amarshiv Engineering Co.

39. On appeal the CIT(A) confirmed the disallowance by observing that no submission in this regard was made during the appeal proceedings before him.

40. Authorised Representative of the assessee before us submitted that the assessee has not pressed this ground before the CIT(A) and, therefore, this ground of appeal of the assessee should be dismissed. We therefore, dismiss this ground of appeal of the assessee.

41. In the result, appeal of the Revenue is partly allowed for statistical purpose, and the appeal of the assessee is partly allowed.

Order pronounced in the Court on Thursday, the 30th of April, 2015 at Ahmedabad.

Sd/- Sd/- (KUL BHARAT) ( N.S. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 30/04/2015