Ita v. The Commissioner Of Income Tax, Central

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN MONDAY, THE 16TH DAY OF JULY 2012/25TH ASHADHA 1934 I.T.A.No.95 of 2011 ---------------------------------- [AGAINSTTHE ORDER IN I.T.ANO.989/COCH/2008 DATED 14.12.2010OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH](ASSESSMENT YEAR 2005-06) --------------- APPELLANT/RESPONDENT:- ----------------------------------------- SKYLINE BUILDERS, RAJAJI ROAD, ERNAKULAM, (PAN: ), REPRESENTED BY ITS MANAGING PARTNER MR.K.V.ABDUL AZIZ. BY ADVS.SRI.E.K.NANDAKUMAR (SENIOR ADVOCATE) SRI.A.K.JAYASANKAR NAMBIAR (SENIOR ADVOCATE) SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH RESPONDENT/APPELLANT:- ----------------------------------------- THE COMMISSIONER OF INCOME TAX, CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, COCHIN - 682 018. BY SENIOR COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI. P.K.R.MENON STANDING COUNSEL FOR INCOME TAX SRI.JOSE JOSEPH. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 16-07-2012, ALONG WITH I.T.A.No.127/2011, THE COURT ON THE SAME DAYDELIVERED THE FOLLOWING:- Thottathil B.Radhakrishnan & K.Vinod Chandran, JJ. -------------------------------------------------------------------- I.T.A.Nos.95 of 2011 & 127 of 2011 --------------------------------------------------------------------- Dated this, the 16[th] day of July, 2012 JUDGMENT K.Vinod Chandran,J: The above appeals have been filed against the orders of the Income-tax Appellate Tribunal, Cochin Bench for theassessment years 2005-06 and 2006-07. The appellant/assessee,a builder, is aggrieved by the assessments made under Section143(2) of the Income Tax Act, 1961 (hereinafter referred to as the“Act”) pursuant to a search in the business premises of theappellant. The dispute revolves around the consideration of theamounts which remain outstanding under the so-called “consumerdeposit account” as income for the respective years. Since we aredisposing of the appeals at the stage of admission and since thecontext of the orders we propose to pass does not requireanswering any questions of law; we do not extract the questions oflaw framed by the assessee. 2. It was noticed by the Assessing Officer, onverification of the seized records as against the returns filed, thatthe assessee was receiving deposit from its clients for the purposeof meeting the expenditure towards electricity connection, water connection and so on and so forth. Rejecting the contention of theassessee that the deposits were never treated as assessee’sincome and are not taken into profit and loss account of theassessee, the Assessing Officer added back the total unutilizedbalance available in such customer deposit account to the totalincome of the assessee, treating the same as coming under thehead business income. The reasoning was that the receipts cominginto the customer deposit account is made on the specificagreement that such payments would be routed through theassessee only and assessee having made provisions for suchservices, there are still amounts remaining in credit in the saidaccounts. These amounts have not been utilized for the purpose ofproviding various services to the customers and having not beenrefunded to such customers; the same was held to be businessincome and hence the assessee was found liable to tax on suchincome under the provisions of the Act. The Tribunal havingassessed each of the heads under which amounts were receivedand appropriated, remanded the matter back to the AssessingOfficer for consideration of the accounts with respect to 'Transferand Cable', 'Village tax and tax assessment expenditure' and'KCWWB', but confirmed the addition on other heads. 3. The learned Senior counsel Sri.A.K.JayasankarNambiar, on our direction, produced the agreements entered intowith the clients of the assessee being purchasers of independentapartments as also documents showing the details of the deposit forthe projects completed in each year as also the balance sheetdisclosing how the amounts were treated as liability in the books ofaccounts. Our intention was not to examine the facts of the issue,but to arrive at a clear picture of the respective claims of thedepartment and the assessee. The sale agreement produced by theassessee shows that these amounts are not the part of the totalsales consideration. As noticed above, the customer depositaccounts are with respect to various services in the apartments, likepower connection, water connection, Cable TV connection etc.These necessarily are to be taken out by the individual owners ofthe apartment after the respective apartments are certified fit foroccupation by the local authority. The assessee being a builder forthe convenience of its customers; as also taking into account thecompetition in the market posed by other builders; undertakes tomake arrangements for the provision of the same, since noconsumer would enjoy the hassle of being entangled in red-tape. Itis also more convenient for the builder to embark upon such a venture collectively, since such provision has to be made for eachapartment in each of its projects. Hence the assessee undertakessuch arrangements, however, with a condition that the statutory feesand expenses thereon are to be met by the individual customer. 4. Learned Senior Counsel would also urge before usthat the authorities have not looked into the various bills availablewith the assessee which would reveal that the assessee is notlevying any service charges on such arrangement being made and itis the actual expense that is being reimbursed. However, as anyprudent business-man would do, the assessee insists on advancefrom the customers, since the apartments are handed over makingthem completely fit for occupation with the provision of power, water,etc. and after handing over, collection of such expenses would bedifficult. We see that the Tribunal has reversed the findings of thefirst appellate authority. The 1[st] appellate authority had allowed theclaim, thus resulting in divergent findings on facts. 5. Looking at the documents relied on by the assessee,as also the order of the lower authorities, we are of the opinion thatthe aspects relevant for examination are: i. the purpose for which the amounts are received bythe assessee from the customer;the assessee from the customer; ii. the utilization of such amounts and the evidencesregarding the same and; and iii. the factum of refund. 6. The assessment order lists out the projects in whichamounts were received and the balance lying outstanding in suchaccounts. The learned Senior Counsel would show at least fourinstances where there are no outstandings, pointing to the fact thatafter utilization what remains is refunded completely to thecustomers. We are also told that at this point more refunds havebeen effected and evidently, that was the case of the assesseebefore the Assessing Officer, since the amounts outstanding havebeen shown as liability in the books of accounts. On the totality ofthe facts and circumstances, we are of the opinion that the issuerequires a second look at the hands of the Assessing Officer. 7. In the result, the appeals are allowed, the order of the lower authorities are set aside and the issue is remanded to theAssessing Officer for fresh consideration. The appellant/assesseeshall produce a certified copy of this judgment before the AssessingOfficer within two weeks from the date of receipt of the same. TheAssessing Officer shall thereupon afford an opportunity to theassessee to produce all the relevant materials and also an 7. In the result, the appeals are allowed, the order of the lower authorities are set aside and the issue is remanded to theAssessing Officer for fresh consideration. The appellant/assesseeshall produce a certified copy of this judgment before the AssessingOfficer within two weeks from the date of receipt of the same. TheAssessing Officer shall thereupon afford an opportunity to theassessee to produce all the relevant materials and also an opportunity for personal hearing. The de novo consideration shall becompleted as expeditiously as possible. In the result, the appeals are allowed, setting aside theorders of the Tribunal in so far as the orders of the AssessingOfficer making additions with respect to consumer deposit accountswas restored and these issues are also remanded for de novoconsideration of the Assessing authority. Sd/- Thottathil B.Radhakrishnan Judge vku/ Sd/- K.Vinod Chandran Judge. - true copy -