FROM MY ARCHIVES-ITAT, KOLKATA UNREPORTED DECISIONS ( Part 4)

FROM MY ARCHIVES-ITAT, KOLKATA UNREPORTED DECISIONS   ( Part 4)

1. Brahmaputra Carbon Ltd. vs. CIT, Kolkata-1, ITA No.894/K/2013;

    Date of Order : 01.06.2016

 Sec. 263- The view taken by the AO cannot be considered to be erroneous and prejudicial to the interest of the revenue where the CIT has exercised the jurisdiction on the ground that the AO had failed to make proper inquiries when the issues raised by the CIT are covered by  the decision of the Hon’ble Supreme Court inasmuch as such an inquiry by the A.O would be a futile exercise.

The Assessee  company was engaged in the business of manufacture of calcined petroleum   coke. For   A.Y.2008-09 the assessee filed return of income declaring total income at Rs. Nil. The assessee was entitled to claim deduction u/s 80IC(2)(a)(iii) of the Act.

While arriving at the profits on which the aforesaid deduction was claimed by the assessee, the assessee considered the transport subsidy, Central Insurance subsidy, power subsidy and interest subsidy as profits derived from the business of manufacture of article or thing viz., calcined petroleum coke which was manufactured in a new central unit at Industrial Estate, P.O.and Dist. New Bongaigaon, Assam. The AO passed order of assessment dated 15.11.2010 u/s 143(3) of the Act accepting the claim of deduction u/s 80IC(2)(a)(iii) of the Act. The CIT in exercise of his powers  u/s 263 of the Act was of the view that the subsidies that were considered as profits of the business for allowing deduction u/s 80IC of the Act cannot be so considered for allowing deduction u/s 80IC of the Act.  According to the CIT the aforesaid subsidies had to be considered as income from other sources and therefore was not eligible for deduction u/s.80-IC(2)(a)(iii) of the Act. Aggrieved by the order of CIT, the assessee had preferred the appeal before the Tribunal.

it was brought to the notice of the bench that the Hon’ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd. (2013) 34 Taxman.com 34 had decided the issue in favour of the assessee holding that all the above subsidies have to be considered as profits and gains derived from the business of the assessee and therefore have to be considered for the purpose of allowing deduction u/s 80IC of the Act. It was also brought to the bench’s notice that the Hon’ble Supreme Court has confirmed the order of Hon’ble Gauhati High Court in the case of CIT vs Meghalaya Steels Ltd.(2016) 67 taxmann.com 158(SC).

2.  ACIT vs. Durga Krishna Store, ITA No. 1348/K/200 & C.O. No. 100/K/2008; Order dated 27.01.2015

Sec 145(3) r.w sec 28: Where the AO found that books of account were not properly maintained, CIT(A) was right in holding that the A.O should have rejected the same and estimated the net profit. He could not have picked up sundry creditors and deposit figures out of the same accounts which were liable to be rejected and make additions on this account.

The assessee is a civil contractor. The total turn over of the assessee was Rs.12,06,81,735/- and Gross profit was Rs.77,13,029/-. On examination of the books of account AO found that the assessee was not maintaining proper books which were mostly supported by self made vouchers. The assessee also showed sundry creditors of Rs.1,47,54,422/- in the name of three persons who happened to be the employees of the assessee. The assessee had explained that these persons were employees of the assessee firm and money was transferred to them to make payments on account of expenses incurred in different work sites. AO was not satisfied by the explanation submitted in this regard. AO found that the explanation of the assessee is not satisfactory and AO added an amount of Rs.1,47,54,222/-. He also noted that the assessee has made security deposit of Rs.33,08,848/- which were not reflected. He also added the same.

In appeal the ld. CIT(A) found in the assessee’s submission that by making the above addition of Rs.1,47,54,422/- and Rs33,08,848/- the income computed by the AO was 16% of the gross receipts which was excessive and unreasonable. As regards addition on account of security deposit ld. CIT(A) held as under :-

“I have carefully considered the submission of the Ld. AR and also gone through the assessment order. It appears that the ld. AO has made this addition on the ground without appreciating the facts of the case. On going through the assessment records, it appears that no clarification was asked, so far as the mode of making the security deposits and its accounting procedure. It is clear that the deposit was not made by the assessee, neither it was given by the sub-contractors. One part of the payment to the assessee was deducted by the contractee and kept as security deposits. For completion of the work, the amount was returned to the assessee which, in turn, was adjusted with the sub-contractor. However, the same was not properly reflected in the books of a/cs of the assessee. For that reason, the proper course would have been to invoke the provisions of Sec.145(3) of the Act. Without doing so, the AO has made the addition u/s 69 of the Act. This addition cannot be sustained subject to the observation given subsequently against the additional grounds taken by the assessee.”

Further the ld. CIT(A) was of the opinion that when the AO found that books of account were not properly maintained he should have rejected the same and estimated the net profit. The ld. CIT(A) proceeded to hold that in assessee’s case the profit should have been estimated at 5% of the total receipts. Accordingly the ld. CIT(A) directed the AO that the addition in this case be restricted to 5% of the total receipts as taxable income of the assessee.

Against the above order the revenue and assessee were in cross appeal before the Hon’ble Tribunal.

Held

In analogical situation in assessee’s own case the Tribunal vide ITA No.704/Kol/2009 for A.Yr.2004-05 vide order dated 28.08.2009 has considered similar additions. In that case the assessee had similarly not maintained proper books of account on a total turnover of Rs.18,73,50,356/- and the income was shown at Rs.50,09,320/-. The assessee had also shown five sundry creditors for Rs.1,62,87,188/-. The AO had rejected the books of account u/s 145 of the IT Act and estimated the net profit at 5% of the gross receipts. The assessee appealed before the ld. CIT(A) and ITAT held that estimation of net profit at 5% was justified.

Finally the Tribunal held as under –

“As rightly found by the ld. CIT(A) the best course available for the AO to reject the books of account and making an estimation of profit . AO cannot pick up sundry creditors and deposit figures out of the same accounts which were liable to be rejected and make additions on this account. Hence we find that the ld. CIT(A) is correct in holding that AO should have invoked the provision of section 145(3) of the Act to reject the books of account and estimate the profit of 5% in assessee’s own case this approach justified. Accordingly we note that the ld. CIT(A) has passed a reasonable order. He has elaborately dealt with the issues and found that on the facts and circumstances of the case AO should have rejected the books of account and rejected the additions and added profit @5% of the net profit. This estimation of profit has also been accepted by the Tribunal in assessee’s own case for another order in similar situations. In this view of the matter respectfully following the precedent as above we do not find any infirmity in the order of the ld. CIT(A).”

3.  M/s Mangilal Estates (P) Ltd. vs. DCIT, Central Circle-1(3) , ITA   No. 156/K/2015,Order dated : 21.02.2018

Issue 1:

The assessee being a body corporate has to incur the expenses for its existence despite of no business activity as held by the Hon’ble Calcutta High Court in the case of Ganga Properties Limited (Supra). Therefore the disallowance of the entire expenses cannot be made.

Issue 2:

Capital gains is to be taxed in the year of entering into agreement for sale when the assessee got part payment and assessee also parted with the possession of the property as per the provision of sec 2(47)(v) r.w sec 53A 0f  Transfer of property Act and not in the year of its registration.

Issue 1

The assessee was  engaged in business of letting out of immovable property. There was no income shown by the assessee from the business activity but the assessee claimed certain expenses to maintain the status of the company active. During the instant year the assessee had suffered business loss of Rs. (-) 4,73,950/- which was disallowed the AO on the ground that no business activity was carried on the assessee. Being aggrieved the assessee preferred an appeal before CIT(A),  who has confirmed the addition made by the AO.

In further appeal filed by the assessee before the Tribunal, Hon’ble partly allowed the appeal holding as under –

“Indeed, the assessee being a body corporate has to incur the expenses for its existence despite of no business activity as held by the Hon’ble Calcutta High Court in the case of Ganga Properties Limited (Supra). Therefore the disallowance of the entire expenses cannot be made. But at the same time the amount of expenditure necessary for the sustenance of the company and which has nexus with the business activity of the assessee is eligible for deduction.    

However the expenses incurred in connection with the rental income cannot be allowed as deduction. It is because the assessee for the rental income entitled for the deduction as per the provisions of section 24(a) of the Act which it has already claimed. 

Thus in the absence of the information we are of the view that all the expenses incurred by the assessee cannot be treated as business expenses. Therefore in our view after considering the entire facts of the case the justice shall be served if the disallowance made by the AO is restricted to the reasonable extent. Hence, in the interest of justice & fair play we are inclined to restrict the disallowance of the expenses to the tune of 10% of the expenses claimed by the assessee.”

Cases referred to :

Hon'ble Calcutta  High Court in the case of CIT vs. Ganga Properties Ltd. reported in 199 ITR 94 (Cal)

Issue 2:

During the instant year i.e, AY: 2012-13, the assessee had transferred immovable property by a registered deed of conveyance, whose stamp duty was valued by the District Registrar,  Chaibasa at Rs. 1,90,83,227/-. The assessee did not offer any amount to taxation.

Earlier, vide an agreement dated 22.03.1992, the assessee received an advance of Rs. 19,000/- and handed over the possession of the property on the said date.  But the registration could not be executed due to some problem relating to the title of the property.

The AO observed that the assessee transferred the property during the instant year: i.e, AY: 2012-13 and such transfer is liable to be taxed for the year under consideration. Accordingly the AO treated the stamp duty of Rs. 1,90,83,227/- as sale consideration u/s 50C and determined the capital gains income  and added Rs. 18,91,170/- to the total income of the assessee .

Being aggrieved the assessee preferred an appeal before CIT(A), where the CIT(A) confirmed the addition of the AO.

In the instant appeal filed by the assessee, the Hon’ble Tribunal held that the capital gains is to be taxed in the year of entering into agreement for sale when the assessee got part payment and assessee also parted with the possession of the property as per the provision of sec 2(47) r.w sec 53A 0f  Transfer of property Act and not in the year of its registration. Therefore, the taxability of capital gains at the hands of the assessee did not fall in the assessment year 2012-2013.

Following:

·                 Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkads Kapadia Vs. CIT reported in 260 ITR 491

·                Bombay Tribunal in the case of Ms. Rubab M. Kazerani Vs. JCIT, reported in 91 ITD 429

Distinguished:

·                Bagri Impex (P) Ltd. vs. ACIT  (2013) 31 taxmann.com 39 (Cal)