M/s. Mahakaushal Hospital Pvt. Ltd., Jabalpur V. ACIT, Jabalpur

CO 11/JAB/2012

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9414 (ITAT-JABALPUR)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 01-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VED PRAKASH MISHRA
• Keywords: Depreciation; Question of law; Tax effect
• Section: 40A(3); 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BENCH, JABALPUR BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO. 77/JAB./2012 ASST. YEAR :2007-08 A.C.I.T., CIRCLE 1(1), VS. M/S. MAHAKAUSHAL HOSP ITAL PVT. LTD., JABALPUR. WRIGHT TOWN, JABALPUR. (PAN : AADCM 5901 E) C.O. NO. 11/JAB./2012 (IN ITA NO. 77/JAB./2012) ASST. YEAR :2007-08 M/S. MAHAKAUSHAL HOSPITAL PVT. LTD., VS. A.C.I.T., CIRCLE 1(1), WRIGHT TOWN, JABALPUR. JABALPUR. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI VED PRAKASH MISHRA, DR ASSESSEE BY : SHRI ANIL KUMAR GUPTA, C.A. DATE OF HEARING : 27.03.2014 DATE OF PRONOUNCEMENT : 28.03.2014 ORDER PER BHAVNESH SAINI, J.M.: THE DEPARTMENTAL APPEAL AS WELL AS CROSS OBJECTIO N BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A), JABALPUR DATED 19.12.2011 FOR THE ASSESSMENT YEAR 2007-08. ITA NO.77/JAB/2012 & CO NO. 11/JAB/2012 2 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH TH E PARTIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. 3. THE ASSESSEE IS A PRIVATE LIMITED COMPANY INVOLV ED IN THE BUSINESS OF RUNNING A HOSPITAL IN THE NAME AND STYLE OF MAHAKAU SHAL HOSPITAL. DURING THE YEAR 2007-08, THE ASSESSEE COMPANY HAS RECORDED A TURNOV ER OF RS.2.49 CRORES AND ON SUCH A HUGE TURNOVER HAS DECLARED LOSS. THE AO EXAM INED THE ISSUE OF SALARY PAID TO SIX DIRECTORS WHO WERE COVERED U/S. 40A(2)(B) OF THE IT ACT. FOUR WERE LADY DIRECTORS AND TOTAL SUM PAID TO ALL OF THEM WAS RS. 10,80,000/-. THE AO RECORDED THE STATEMENT OF ALL THE FOUR LADY DIRECTORS AND AL SO MADE INSPECTION OF THE ASSESSEES PREMISES AND FOUND CERTAIN DISCREPANCIES . THE AO WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE REGARDING SALA RY PAID TO THE DIRECTORS AND HELD THAT SALARY PAID TO THE DIRECTORS ARE NOT GENUINE A ND ACCORDINGLY DISALLOWANCE OF RS.10,80,000/- WAS MADE U/S. 37 OF THE IT ACT. THE AO ALSO DOUBTED THE GENUINENESS OF THE BOOKS OF ACCOUNT MAINTAINED BY T HE ASSESSEE. THE BOOK RESULTS WERE REJECTED U/S. 145 AND PROFIT RATE OF 3% WAS AP PLIED ON THE GROSS RECEIPTS AND INCOME OF HOSPITAL WAS COMPUTED AT RS.7,23,388/-. T HE INCOME FROM MEDICINE SHOPS WAS ALSO ESTIMATED AND ADDITION OF RS.30,87,2 31/- WAS MADE. THE ASSESSEE CHALLENGED THE DISALLOWANCE OF SALARY IN A SUM OF R S.10,80,000/- AND INCOME FROM MEDICINE SHOP IN A SUM OF RS.30,87,231/-, WHICH IS NOT IN ISSUE BEFORE US NOW. IT ITA NO.77/JAB/2012 & CO NO. 11/JAB/2012 3 MAY BE CLARIFIED HERE THAT THE ASSESSEE DID NOT CHA LLENGE THE REJECTION OF BOOKS OF ACCOUNT AND COMPUTATION OF INCOME BY APPLYING PROFI T RATE IN A SUM OF RS.7,23,388/- BEFORE THE LD. CIT(A). SAME IS ALSO N OT RAISED IN THE ABOVE CROSS MATTERS. 4. THE LD. CIT(A), AS REGARDS THE ADDITION OF RS.10 ,80,000/- ON ACCOUNT OF DISALLOWANCE OF DIRECTORS REMUNERATION/SALARY, CON FIRMED THE ORDER OF THE AO WITH REGARD TO SALARY PAID TO LADY DIRECTORS AND CONFIRM ED THE ADDITION IN A SUM OF RS.7,60,000/- AND DELETED THE ADDITION OF RS.3,20,0 00/-, I.E., SALARY PAID TO TWO MALE DIRECTORS IN A SUM OF RS.1,60,000/- EACH. THE REVENUE AS WELL AS THE ASSESSEE ARE IN APPEAL AND CROSS OBJECTION CHALLENGING THESE FINDINGS OF THE LD. CIT(A). 5. THE REVENUE IN THEIR APPEAL CHALLENGED THE DELET ION OF ADDITION OF RS.3,20,000/-. THE DEPARTMENTAL APPEAL IS FILED ON 24.08.2012. ACCORDING TO CBDT INSTRUCTION NO. 03/2011 DATED 09.02.2011, NO D EPARTMENTAL APPEAL SHALL HAVE TO BE FILED IN CASE WHERE THE TAX EFFECT DOES NOT EXCEED THE MONETARY LIMIT OF RS.3,00,000/- BEFORE THE TRIBUNAL. ADMITTEDLY, THE TAX EFFECT IN THE DEPARTMENTAL APPEAL IS BELOW RS.3,00,000/-. NO CONSTITUTIONAL VA LIDITY, QUESTION OF LAW OR LEGALITY OF ANY NOTIFICATION OR CIRCULAR HAVE BEEN CHALLENGED IN THE DEPARTMENTAL APPEAL. THE SAME IS, THEREFORE, NOT MAINTAINABLE AN D IS ACCORDINGLY DISMISSED. ITA NO.77/JAB/2012 & CO NO. 11/JAB/2012 4 6. THE ASSESSEE IN THE CROSS OBJECTION CHALLENGED T HE ADDITION OF RS.7,60,000/- ON ACCOUNT OF DISALLOWANCE OF SALARY PAID TO THE DI RECTORS. THE LD. REPRESENTATIVES OF BOTH THE PARTIES ARGUED ON MERITS. THE LD. COUNS EL FOR THE ASSESSEE ALSO SUBMITTED THAT SINCE PROFIT OF THE ASSESSEE IS ESTI MATED BY REJECTING THE BOOKS OF ACCOUNT AND APPLYING NET PROFIT RATE, ADDITION OF R S.7,60,000/- ON ACCOUNT OF DISALLOWANCE OF SALARY TO THE DIRECTORS IS NOT JUST IFIED. HE HAS RELIED UPON THE DECISION OF HONBLE ALLAHABAD HIGH COURT IN THE CAS E OF CIT VS. BANWARI LAL BANSIDHAR, 229 ITR 229, IN WHICH IT WAS HELD THAT W HERE THE INCOME IS ASSESSED BY APPLYING GP RATE BY REJECTING THE BOOKS OF ACCOUNT U/S. 145, NO DISALLOWANCE COULD BE MADE SEPARATELY U/S. 40A(3). SIMILARLY HONBLE M .P. HIGH COURT IN THE CASE OF CIT VS. PURSHOTTAM LAL TAMRAKAR, 270 ITR 314 HELD T HAT THE TRIBUNAL HAD RIGHTLY HELD THAT SECTION 40A(3) WAS NOT APPLICABLE WHEN NE T PROFIT RATE WAS APPLY BY THE AO. CONSIDERING THE ABOVE JUDGMENTS AND THE FACTS O F THE CASE IT IS CLEAR THAT THE LD. CIT(A) CONFIRMED THE ADDITION OF RS.7,60,000/- U/S. 40A(2)(B) OF THE IT ACT. THEREFORE, THE ADDITION WOULD BE WHOLLY UNJUSTIFIED ONCE THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN REJECTED AND INCOME IS ESTIM ATED BY APPLYING THE PROFIT RATE. BOTH THE ABOVE DECISIONS SQUARELY APPLY IN FAVOUR O F THE ASSESSEE. THEREFORE, WITHOUT CONSIDERING THE MERITS OF THE ADDITION, WE ARE OF THE VIEW THAT THE ADDITION IS LIABLE TO BE DELETED ON THIS GROUND ALONE. WE AC CORDINGLY SET ASIDE THE ORDERS OF ITA NO.77/JAB/2012 & CO NO. 11/JAB/2012 5 THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS .7,60,000/-. THE CROSS OBJECTION OF THE ASSESSEE IS ACCORDINGLY ALLOWED. 7. THE ASSESSEE ALSO RAISED ADDITIONAL GROUND OF CR OSS OBJECTION STATING THAT THE DEPRECIATION ON THE FIXED ASSETS IS STILL ALLOWABLE EVEN IF INCOME IS DETERMINED BY APPLYING THE PROFIT RATE. THEREFORE, THE AO HAS ERR ED IN NOT ALLOWING DEPRECIATION FROM THE ESTIMATED PROFIT CALCULATED AT THE RATE OF 3% OF THE TURNOVER AFTER REJECTING THE BOOKS OF ACCOUNT. THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT IT IS A LEGAL POINT AND MAY BE ADMITTED AND RELIED UPON THE DECIS ION OF HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT, 229 ITR 383. THE LD. DR, HOWEVER, OPPOSED THE REQUEST FOR ADMISSION OF ADDIT ION GROUND OF CROSS OBJECTION. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND DO NOT FIND ANY JUSTIFICATION TO ADMIT THE ADDITIONAL GROUND OF CROSS OBJECTION. THE ASSESSEE HAS ADMITTEDLY NOT RAISED THIS ISSUE EITHER BEFORE THE AO OR BEFORE TH E LD. CIT(A). NO REASONS HAVE BEEN GIVEN IN THE APPLICATION FOR ADMISSION OF ADDI TIONAL GROUND OF CROSS OBJECTION AS TO WHY THE SAME POINT WAS NOT RAISED BEFORE THE AUTHORITIES BELOW. NO DETAILS OF FIXED ASSETS HAVE BEEN PRODUCED BEFORE THE AUTHORIT IES BELOW AND EVEN NO DETAILS HAVE BEEN FURNISHED BEFORE US. THEREFORE, IT IS NOT A PURELY LEGAL QUESTION TO ALLOW DEPRECIATION EVEN IF PROFIT RATE IS APPLIED. THE MA TTER REQUIRES INVESTIGATION OF FACTS ITA NO.77/JAB/2012 & CO NO. 11/JAB/2012 6 AND NO FACTS ARE AVAILABLE ON RECORD TO JUSTIFY THE CLAIM OF ASSESSEE. IT MAY BE NOTED HERE THAT EVEN THE ASSESSEE DID NOT CHALLENGE THE R EJECTION OF BOOKS OF ACCOUNT BEFORE THE LD. CIT(A) AS WELL AS BEFORE US. THEREFO RE, WE DO NOT FIND ANY JUSTIFICATION TO ADMIT THE ADDITIONAL GROUND OF CRO SS OBJECTION. IT MAY ALSO BE NOTED HERE THAT WE ARE HEARING THE SECOND APPEAL AND AS S UCH WHAT AO HAS NOT DONE COULD NOT BE AGITATED BEFORE THE TRIBUNAL. WE, THER EFORE, DECLINE TO ADMIT THE ADDITIONAL GROUND OF CROSS OBJECTION. THE REQUEST I S ACCORDINGLY REJECTED. 9. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (T.S. KAPOOR) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, JABALPUR 6. GUARD FILE SR. PRIVATE SECRETARY ITAT, CAMP AT JABALPUR