Case Law Details
ACIT Vs M/s. Agri Gold (ITAT Visakhapatnam)
During the assessment year, the assessee has received the interest of Rs. 7,43,76,762/- and offered it under the business income. The said practice of offering the interest income under the head business income was followed by the assessee for the last so many years, which was accepted by the department. The assessee has placed the surplus funds received from the customers as deposits in banks for temporary period and earning interest income. Hence, the interest income earned by the assessee is inter-related to the business activity carried on by the assessee. Accordingly, the assessee has admitted the same as business income. The issue of assessment of interest under the head business income was considered by this Tribunal in the assessee’s own case for the assessment year 2010-11 in ITA No.452/Vizag/2012 and held that the interest income on deposits made out of surplus funds from the business receipt for temporary periods is assessable under the income from business. The Hon’ble ITAT while adjudicating the issue relied on the decision of Hon’ble Bombay High Court in the case of CIT Vs. LOK holdings and Hon’ble Kolkata High Court in the case of Eveready Industries Limited Vs. CIT and Anr (2010) 323 ITR 312.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal filed by the revenue is directed against order of the Commissioner of Income Tax (Appeals) {CIT(A)}, Vijayawada vide Appeal No.602/CIT(A)/VJA/13-14 dated 27.6.2014 for the assessment year 2011-12.
2. The assessee is a civil contractor filed its return of income declaring total income of ` 3,73,54,496/-. The case was selected for scrutiny and during the course of assessment proceedings, the A.O. found that some vouchers in respect of gravel, sand purchase, metal chip purchases and labour charges were incurred on self-made vouchers and some of them were not maintained properly. The assessee explained that the expenditure was incurred at various places at the field stations and it is not possible to maintain the vouchers properly and some of the vouchers made were misplaced. The A.O., considering the facts of the case held that assessee failed to substantiate expenses, accordingly estimated the income @ 12.5% on construction activity and 8% on sale of plots clear of all the expenditure and depreciation. Secondly, the A.O. treated the interest income of ` 7,43,76,762/- as income from other sources and assessed separately. Thirdly, the A.O. found during the course of scrutiny of balance sheet that there was a decrease in the current liabilities to the extent of `155.96 crores with regard to the venture advances transferred to the sister company of the assessee M/s. Agri Gold Farm Estates India Pvt. Ltd. The assessee has transferred the liability along with collected amount on the corresponding expenses. The assessing officer treated the transferred amount of venture advances as deemed sales and estimated the income@ 8% on Rs.155.96 crores, which worked out to Rs. 12,47,68,000/-. Similarly, the A.O. found that the assessee company has refunded Rs. 184.08 crores to the customers who have opted out or due to breach of contract from ventures. The A.O. treated the refund of amounts to the customers on account of breach of contract as deemed sales and estimated the income @ 8% on Rs. 184.08 crores and computed the total income at Rs. 40,35,89,103/-.
3. Aggrieved by the order of the A.O., the assessee went on appeal before the CIT(A) and the Ld. CIT(A) scaled down the estimation of income from 12.5% to 8% in respect of construction contracts and from 8% to 5% on sale of plots and also allowed the depreciation. While scaling down the estimation of income, the Ld. CIT(A) followed earlier years assessments made by the A.O. in the assessee’s own case. In respect to the interest income, the CIT(A) observed that the assessee company has included the interest earned from the deposits of ideal business funds in the business income and the treatment of including interest income in the business income has been followed consistently for the past so many years. Therefore, the Ld. CIT(A) found that there is no reason to disturb the consistent method of accounting followed by the assessee and relied on the decision of this Tribunal in the assessee’s own case for the assessment year 2010-11 and held that the interest income is required to be assessed as business income and not as income from other sources. Accordingly, deleted the addition made by the A.O.
4. With regard to the estimation of income on deemed sales of Rs. 96 crores and Rs. 185.05 crores, the CIT(A) observed that the assessee had transferred an amount of Rs. 155.96 crores to its sister company i.e. M/s. Agri Gold Farms India Pvt. Ltd. representing the instalments collected on its account after deducting the related marketing expenses as evidenced by the ledger extract produced by the assessee. Accordingly, held that it is not justified to hold the transferred amount as such and estimating the income on such amount. Similarly, in the case of refund of advances amounting ` 184.08 crores, the CIT(A) observed that the assessee has refunded the amounts received from the customers as advances for breach of contract and there was a decrease in the liabilities to that extent as well as the assets. Therefore, CIT(A) held that there was no element of sales involved in refund of advances, accordingly, deleted the addition made by the A.O. with regard to the estimated income on deemed sales of refunds.
5. Aggrieved by the order of the CIT(A), the revenue is in appeal before this Tribunal and raised the following grounds of appeal:
1. The order of the learned Commissioner of income-Tax(Appeals), Vijayawada is erred both in law and on the facts of the case.
2. On the facts and circumstances briefly submitted in the statement of facts, the decision of the learned CIT(A) to assess the income from construction work © 8% & on the sale of plots © S% as against @ 12.5% & 8% as adopted by the AO, respectively , is neither based on any material nor on valid base and hence her decision is unjustified
3. On the facts and circumstances of the case, the Ld.CIT(A) is unjustified in holding that the principle of consistency is to be adopted in this case since the facts and circumstances vary from year to year and this issue is being contested before superior appellate authorities! court.
4. The ld.CIT(A), on the facts and circumstances briefly submitted in the statement of facts , has not taken relevant material factors for determining the rate of profit on each of the above sources.
5. The Id. CIT(A) has wrongly applied the ratio of a decision rendered by the Hon’ble ITAT on issues covered u/s.263 which is not justified on the facts and circumstances of this case.
6. The learned CIT(A) , being the first appellate authority is duty bound to bring the facts and circumstances of the issues before her and apply the correct provisions of law which she has failed to do so in this case.
7. The ld.CIT(A) ought to have considered that the interest earned on the bank deposits is an income under the head ‘other sources’ as held by the Hon’ble ITAT Bench in the case of M/s.KNR Constructions limited.
8. The Ld.CIT(A) had erred in allowing the appeal following the decision of the Hon’ble ITAT made on unconnected facts and circumstances of this case and when an appeal against such decision is also pending before the Hon’ble High Court of Andhra Pradesh & Telangana.
9. The Id, CIT(A) without examining the manner and method in which the assessee has accounted part of its income on the sale of plots while it is not doing so on the transfers made on the transactions accounted under the current liabilities viz., sale attributable to transfer of venture to its sister concern and on the refund of advances, unjustifiably deleted the additions.
10. On the facts and circumstances briefly submitted in the statement of facts, it is prayed that the Hon’ble ITAT may restore the matters considered by it as just to the AO for appropriate examination and due assessment.
6. Ground Nos.1, 10 & 11 are general in nature, which does not require specific adjudication.
7. Ground No.8 is related to the pending appeal before the Hon’ble High Court against the order of the ITAT, which also does not require specific adjudication.
8. Ground Nos.2 to 6 are related to the estimation of income. As discussed above, the A.O. estimated the income @ 12.5% on construction contracts and 8% on sale of plots clear of depreciation and all other expenses which is partly confirmed by the CIT(A).
9. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The revenue’s case is that the A.O. had considered all the facts and estimated the income @ 12.5% on construction contracts and 8% on sale of plots, hence the same required to be upheld. The assessee’s case is that the assessee has maintained the books of accounts, which was duly audited and supported by vouchers and bills, hence there is no case for resorting for the estimation of income. It is observed that the A.O. has noticed the defects such as expenses under the heads gravel, sand purchase, metal chip purchases and labour charges, etc. were incurred on self-made vouchers or there were no bills and vouchers in some cases. The quantum of amount of the expenditure incurred under the relevant heads and the quantum of expenditure for which the expenditure was incurred on self-made vouchers and the amount of expenditure for which no details, was made available and was not quantified by the A.O. In the earlier years the A.O. has accepted the estimation of income @ 8% on construction contracts and 5% on sale of plots, and the same is evidenced by the Ld. CIT(A)’s order. The A.O. has not brought on record any major changes in the expenditure incurred by the assessee and any suspicious nature of expenditure, or inflation of expenditure. The assessee has maintained the regular books of accounts and the books of accounts were duly audited by the qualified Chartered Accountants. Though rule of resjudicata does not apply to the Income Tax proceedings, the rule of consistency does apply to the income tax proceedings. This view is supported by the Hon’ble Supreme Court judgement in the case of Kanmudin Narayan Dalal (2001) 117 Taxman 375 (SC) and Satish Panalal Shah 117 Taxman 373 (SC). From the perusal of the assessment order, it is observed that the A.O. did not reject the books of accounts before resorting for estimation of income. In the absence of any evidence brought on record to hold that the expenditure claimed by the assessee is unreasonably high and quantification of unverifiable nature of expenditure and fresh facts to resort higher estimation of income, we do not see any reason to interfere with the order of the Ld. CIT(A) and we hold that the Ld. CIT(A) has rightly applied the estimation of income @ 8% on contract receipts and 5% on sale of plots. Accordingly, the order of the Ld. CIT(A) is upheld and the revenue’s appeal on these grounds are dismissed.
10. Ground No.7 is related to the assessment of interest income under the head Other sources. During the assessment year, the assessee has received the interest of Rs. 7,43,76,762/- and offered it under the business income. The said practice of offering the interest income under the head business income was followed by the assessee for the last so many years, which was accepted by the department. The assessee has placed the surplus funds received from the customers as deposits in banks for temporary period and earning interest income. Hence, the interest income earned by the assessee is inter-related to the business activity carried on by the assessee. Accordingly, the assessee has admitted the same as business income. The issue of assessment of interest under the head business income was considered by this Tribunal in the assessee’s own case for the assessment year 2010-11 in ITA No.452/Vizag/2012 and held that the interest income on deposits made out of surplus funds from the business receipt for temporary periods is assessable under the income from business. The Hon’ble ITAT while adjudicating the issue relied on the decision of Hon’ble Bombay High Court in the case of CIT Vs. LOK holdings and Hon’ble Kolkata High Court in the case of Eveready Industries Limited Vs. CIT and Anr (2010) 323 ITR 312. For ready reference, we extract the relevant paragraph of the Hon’ble ITAT order, which reads as under:
“6.6 Be that as it may, the Hon’ble Bombay High Court in the case of LOK Holdings, has held as follows:-
“Interest earned by assessee a property developer, by making temporary deposits of surplus money out of advances received by it from intending purchases is business income and cannot be assessed as income from other sources.”
6.7 The Hon’ble Kolkata High Court in the case of Eveready Industries India Ltd. (supra) has held as follows:
“AO was right in treating the interest income earned by the assessee by investing surplus fund of the business in short term deposits as business income in accordance with sub r (1) of r 8 of IT rules. ”
6.8 Thus, the issue whether interest income on deposits made out o f surplus money from advance raised for purchase is assessable under the head “income from business” or not has been adjudicated in favour o f the assessee by those two High Courts. Hence the view taken by the Assessing Officer is a possible view. Under the circumstances, the learned CIT cannot substitute the possible view of the Assessing Officer with his own view in an order passed u/s 263 of the Act as held by various High Courts as well as the Hon’ble Supreme Court. Thus, we uphold the contentions of the assessee and cancel the order OF the CIT. ”
11. Respectfully following the view taken by the ITAT and following order of the Hon’ble Bombay High Court and Hon’ble Kolkata High Court, we hold that the interest income received on deposits required to be assessed under the business income but not as separate source of income. Hence, we uphold the order of the Ld. CIT(A) and dismiss the appeal of the revenue on this ground.
12. Ground No.9 is related to the estimation of income on deemed sales. The A.O. estimated the deemed sales on transfer of ventures to its group company amounting to ` 155.96 crores @ 8%. The CIT(A) observed that the assessee had received advances for sale of plots from the customers on behalf of its group company which is having lands and allot the plots to the customers. In the process, the assessee had transferred the advances so received from the customers to the group company M/s. Agri Gold Farms Pvt. Ltd. representing instalments collected on its behalf after deducting the marketing and collection expenses so that group company to allot plots or flats to their respective customers. The assessee has produced the ledger extract before the CIT(A) and the Ld. CIT(A) after examining the details furnished by the assessee concluded that there was no deemed sales and it is merely a transfer entry without any profit element, accordingly, deleted the addition. On careful verification of the submissions and the orders of the lower authorities, we find that there was no sales element involved and it is a simple transfer of the balances payable to the Agrigold Farms and Estates Pvt. Ltd. and there was no case for estimation of income or for treating the transfer of amounts as sales. The Ld. D.R. did not bring any evidence during the appeal hearing to controvert the finding of the Ld. CIT(A) or to substantiate the deemed sales. Therefore, we do not find any reason to interefere with the orders of the Ld. CIT(A) and the same is upheld.
13. The next issue in deemed sales is ` 184.08 crores relating to the refund of advances to the customers by the assessee. The assessee has received the booking advances and instalments against the purchase of property products and sale consideration. In case if the plots or flats are not available for whatever reasons in the existing project layout or complex, the assessee will allot similar plot or flat or project elsewhere and deliver within the period the agreed period or refund the money to the purchaser or prospective purchaser along with some suitable or reasonable or permissible compensation. The relevant clauses were included in the application form being issued by the assessee to its customers. According to the terms and conditions, the assessee has refunded the advances so received to the customers for breach of contract. Since the amounts received were refunded to the customers along with some suitable compensation, there is no case for any profit element and the same cannot be treated as deemed sales. From verification of the balance sheet, the CIT(A) observed the decrease in liabilities as well as corresponding assets. The revenue has not brought on record any evidence to show that there was a sale involved in the transaction of refunds or advances and transfer of venture to the group companies. Therefore, we hold that CIT(A) has rightly deleted the addition relating to deemed sales. In addition to the above, once the A.O. has resorted for estimation of income on sales as held by Hon’ble A.P. High Court in the case of Indwell Constructions 232 ITR 776 (AP) and in the case of Dabros Industrial Co. Pvt. Ltd., Hon’ble Kolkata High Court judgement 108 ITR 424 (Cal) no other addition required to be made. Therefore, we uphold the order of the CIT(A) and dismiss the appeal of the revenue on these grounds.
14. In the result, the appeal of the revenue is dismissed.
The above order was pronounced in the open court on 10th Jan’18.
