M/s. Harish Chandra Pael, JAIPUR V. ACIT, UDAIPUR

CO 26/JODH/2013

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9717 (ITAT-JODHPUR)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-06-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 07-05-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 19-09-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Business income; Depreciation
• Section: 142(1); 144

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.286/JODH/2013 (A.Y. 2009-10) ACIT, CIRCLE-1, VS. M/S. HARISH CHANDRA PATEL, UDAIPUR. S-29, UPADHYAY STADIUM, RAM TAKIES KI GALI, SAGWARA, DUNGARPUR. PAN NO. AAEFH 9574 J (APPELLANT) (RESPONDENT) C.O. NO.26/JODH/2013 (A.Y. 2009-10) M/S. HARISH CHANDRA PATEL, VS. ACIT, CIRCLE-1, C/O SHRAWAN KUMAR GUPTA UDAIPUR. ADVOCATE & TAX CONSULTANT, 416, SURYA CHAMBER, RADIO MARKET, NEHRU BAZAR, JAIPUR. PAN NO. AAEFH 9574 J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SHRAWAN KUMAR GUPTA. DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 07/05/2014. DATE OF PRONOUNCEMENT : 12/06/2014. 2 O R D E R PER N.K. SAINI, A.M THE APPEAL BY THE DEPARTMENT AND THE CROSS OBJECTI ON BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 27/02 /2013 OF LD. CIT(A), UDAIPUR. IN THE DEPARTMENTAL APPEAL I.E. I.T.A.NO. 286/JODH/2013, THE FOLLOWING GROUNDS HAVE BEEN RAISED:- ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF T HE CASE, THE LD. CIT(A) HAS ERRED IN 1. RESTRICTING THE TRADING ADDITION MADE BY THE AO OF RS. 22,23,988/- TO RS. 2,17,772/- AND ALSO ERRED IN DIRECTING TO ALLOW DEDUCTION ON ACCOUNT OF SALARY AND INTEREST PAID TO PARTNERS, I GNORING THE FACT THAT THE ASSESSEE FAILED TO COMPLY WITH THE PROVISION OF SECTION 184(5) OF THE ACT. 2. DELETING THE ADDITION OF RS. 2,94,861/- MADE ON ACCOUNT OF INCOME FROM OTHER SOURCES IGNORING THE FACT THAT NO EXPENS ES WERE INCURRED TO EARN THE TRADE DISCOUNT, REBATE AND INTEREST FRO M BANK. THAT THE APPELLANT CRAVES TO ADD, AMEND, ALTER, DEL ETE OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME O F HEARING. THE GROUNDS RAISED IN THE CROSS OBJECTION I.E. C.O. NO. 26/JODH/2013 ARE FOLLOWING:- 1. THE IMPUGNED ORDER U/S 144 DATED 13/12/2011 IS BAD IN LAW AND ON FACTS OF THE CASE, FOR WANT OF JURISDICTION AND VAR IOUS OTHER REASONS AND HENCE THE SAME MAY KINDLY BE QUASHED. 2.1 RS. 2,17,772/-: THE LD. CIT(A) HAS GROSSLY ERR ED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CONFIRMING THE INVOKING OF THE PROVISIONS OF SEC. 145(3) BY THE AO. THE PROVISION SO INVOKED BY THE AO AND CONFIRMED BY THE LD. CIT(A) BEING CONTRARY TO THE P ROVISIONS OF LAW AND FACTS, HENCE THE SAME MAY KINDLY BE QUASHED. C ONSEQUENTLY THE TRADING ADDITION TO THE EXTENT OF RS. 2,17,772/- MA Y KINDLY BE DELETED IN FULL. 3 ALTERNATIVELY AND WITHOUT PREJUDICE TO ABOVE 2.2 THE LD. CIT(A) FURTHER HAS GROSSLY ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN SUSTAINING OR DETERMINING N.P. PROFI T @ 7% AS AGAINST 6.62% DECLARED BY THE ASSESSEE AND 8% APPLIED BY TH E LD. AO THEREBY SUSTAINING THE TRADING ADDITIONS TO THE EXTENT OF R S. 2,17,772/-. HENCE THE ADDITION SO MADE BY THE AO AND PARTLY SUS TAINED BY THE CIT(A) IS BEING TOTALLY CONTRARY TO THE PROVISIONS OF LAW AND FACTS ON THE RECORD AND HENCE THE ADDITION MAY KINDLY BE DEL ETED IN FULL. 3. THE LD. AO ERRED IN LAW AS WELL AS ON THE FACTS OF THE CASE IN CHARGING OF INTEREST U/S 234 AS CONSEQUENTIAL IN NATURE. TH E APPELLANT TOTALLY DENIES IT LIABILITY OF CHARGING OF ANY SUCH INTERES T. HENCE THE INTEREST SO CHARGED, BEING CONTRARY TO THE PROVISIONS OF LAW AND FACTS, MAY KINDLY BE DELETED IN FULL. 4. THE APPELLANT PRAYS YOUR HONORS INDULGENCE TO AD D, AMEND OR ALTER ALL OR ANY OF THE GROUNDS OF THE CROSS OBJECTION ON OR BEFORE THE DATE OF HEARING. 2 VIDE GROUND NO. 1 OF THE DEPARTMENTAL APPEAL AND G ROUND NO. 2.1 & 2.2 OF THE ASSESSEES CROSS OBJECTION, THE ISSUE INVOLVED IS COMMON WHICH RELATES TO THE DELETION/SUSTENANCE OF THE TRA DING ADDITION. 3. FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT T HE ASSESSEE FILED RETURN OF INCOME ON 25/09/2009 THROUGH E-FILING MOD E DECLARING AN INCOME OF RS. 23,72,490/-. LATER ON, CASE WAS SELE CTED FOR SCRUTINY AND THE ASSESSING OFFICER ISSUED NOTICE U/S 142(1) & 14 3(2) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT ). SINCE, THERE WAS NO COMPLIANCE ON BEHALF OF THE ASSESSEE THE ASSESSING OFFICER FRAMED THE ASSESSMENT U/S 144 OF THE ACT. THE ASSESSING OFFIC ER OBSERVED THAT THE 4 ASSESSEE WAS UNABLE TO PRODUCE THE BOOKS OF ACCOUNT S, BILLS AND VOUCHERS, IN SUPPORT OF EXPENDITURE, SO IT WAS DIFFICULT TO B ELIEVE THE GENUINENESS OF THE RECEIPTS AND EXPENDITURE CLAIMED. HE, THEREFORE , INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT AND APPLIED NET PROFIT RATE OF 8% AFTER ALLOWING THE INTEREST AND DEPRECIATION ON THE GROSS CONTRACT RECEIPTS OF RS. 5,74,55,933/-. THE ASSESSING OFFICE R CONSIDERED THE INTEREST INCOME OF RS. 1,84,271/- AND OTHER INCOME OF RS. 1,10,590/- CREDITED BY THE ASSESSEE SEPARATELY UNDER THE HEAD INCOME FROM OTHER SOURCES FOR COMPUTING THE INCOME. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A) AND SUBMITTED THAT THE ADDITION MADE BY THE ASSESSI NG OFFICER WAS HIGH AND EXCESSIVE WITHOUT APPRECIATING THE PAST HISTORY AND ALLOWING SALARY AND INTEREST TO THE PARTNERS SEPARATELY. 5. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE, OBSERVED THAT THE INTEREST INCOME, DISCO UNT AND REBATE INCOME WAS ACTUALLY THE PART OF BUSINESS INCOME BECAUSE TH E DEPOSITS BELONGED TO THE ASSESSEE AND INVESTMENT IN FDR WAS NECESSARY FOR THE BUSINESS OF THE FIRM AS THE SAME WERE PLEDGED AS SECURITY WITH THE DEPARTMENT AT THE TIME OF PARTICIPATING/PROCURING THE TENDER/CONT RACT WORKS. HE ALSO 5 OBSERVED THAT THE DISCOUNT AND REBATE WERE AGAINST THE PURCHASES OF MATERIAL FOR EXECUTION OF CONTRACT WORK IN THE COUR SE OF BUSINESS. HE, THEREFORE, HELD THAT BOTH THE INCOME WAS PART AND P ARCEL OF BUSINESS INCOME AND THERE WAS NO NECESSITY TO REDUCE THE GRO SS TURNOVER DECLARED BY THE ASSESSEE UNDER THE HEAD INCOME FROM BUSINESS FOR DETERMINATION OF INCOME. 6 . AS REGARDS TO THE APPLICATION OF THE NET PROFIT R ATE OF 8% BY THE ASSESSING OFFICER, THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAD SHOWN NET PROFIT RATE OF 7.50% IN THE IMMEDIATELY PRECEDI NG YEAR AS AGAINST THE NET PROFIT RATE OF 6.62% DECLARED IN THE YEAR UNDER CONSIDERATION. HE ALSO OBSERVED THAT THE GROSS RECEIPTS OF THE ASSESSEE IN CREASED TO RS. 5,77,50,834/- FROM RS. 77,53,365/- IN THIS YEAR IN COMPARISON TO THE PRECEDING YEAR WHICH WAS A HUGE INCREASE IN THE TUR NOVER. HE, THEREFORE, TO MEET THE ENDS OF JUSTICE, CONSIDERED IT REASONAB LE TO ESTIMATE THE NET PROFIT RATE AT 7% ON THE TOTAL TURNOVER SUBJECT TO THE ALLOWABLE DEDUCTIONS ON ACCOUNT OF SALARY AND INTEREST PAID T O THE PARTNERS. NOW THE DEPARTMENT IS IN APPEAL AND THE ASSESSEE FILED CROSS OBJECTION. 7 . LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT NET PROFIT RATE APPLIED BY THE ASSESSING 6 OFFICER AT THE RATE OF 8% WAS JUSTIFIABLE BY CONSID ERING THE PAST HISTORY OF THE ASSESSEE. THEREFORE, THE LD. CIT(A) WAS NOT JU STIFIED IN ALLOWING RELIEF TO THE ASSESSEE. 8 . IN HIS RIVAL SUBMISSIONS, LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW A ND FURTHER SUBMITTED THAT DUE TO HUGE INCREASE IN THE TURNOVER FOR THE Y EAR UNDER CONSIDERATION IN COMPARISON TO THE EARLIER YEAR, A SLIGHT DECLINE IN NET PROFIT RATE WAS JUSTIFIED. THEREFORE, THE LD. CIT( A) OUGHT TO HAVE DELETED THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER. 9 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PA RTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RE CORD. IN THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER APPL IED NET PROFIT RATE OF 8% WITHOUT ANY BASIS. IT IS ALSO NOTICED THAT THE NET PROFIT DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AT 6.62% WAS ON LOWER SIDE IN COMPARISON TO THE EARLIER YEAR WHEREIN NET PROFIT R ATE WAS 7.50%. AT THE SAME TIME, THERE WAS A TREMENDOUS INCREASE IN THE T URNOVER OF THE ASSESSEE FROM RS. 77,53,365/- IN THE PRECEDING YEAR TO RS. 5,77,50,834/- IN THIS YEAR. IN OUR OPINION, THE HUGE INCREASE IN THE TURNOVER MAY BE A FACTOR FOR THE DECLINE IN NET PROFIT RATE IN THE YE AR UNDER CONSIDERATION. 7 IN OUR OPINION, THE LD. CIT(A) WAS FAIR AND REASONA BLE IN ESTIMATING THE NET PROFIT AT THE RATE OF 7% ON THE TOTAL TURNOVER SUBJECT TO THE ALLOWABLE DEDUCTION ON ACCOUNT OF SALARY AND INTEREST PAID T O THE PARTNERS AND DEPRECIATION. WE, THEREFORE, DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, GROUND NO. 1 OF THE DEPARTMENTAL APPEAL AND GROUND NO. 2.1 & 2 .2 OF THE ASSESSEES CROSS OBJECTION ARE DISMISSED. 10 . GROUND NO. 3 OF THE CROSS OBJECTION RELATES TO TH E CHARGING OF INTEREST U/S 234 OF THE ACT. 11 . AS REGARDS TO THIS ISSUE, IT IS NOTICED THAT IT W AS NOT RAISED BEFORE THE LD. CIT(A), SO IT IS NOT ARISING OUT OF THE IMP UGNED ORDER. MOREOVER, THE CHARGING OF INTEREST U/S 234 OF THE ACT IS CONS EQUENTIAL IN NATURE. WE ORDER ACCORDINGLY AND DO NOT SEE MERIT IN THIS GROU ND OF THE ASSESSEES CROSS OBJECTION. 12. ANOTHER ISSUE AGITATED BY THE DEPARTMENT VIDE GROUN D NO. 2 RELATES TO THE DELETION OF ADDITION OF RS. 2,94,861/- MADE BY THE ASSESSING OFFICER UNDER THE HEAD INCOME FROM OTHER SOURCES. 8 13. AS REGARDS TO THIS ISSUE, WE HAVE ALREADY CONSIDERE D THE OBSERVATIONS OF THE LD. CIT(A) WHILE DECIDING THE G ROUND NO. 1 OF THE DEPARTMENTAL APPEAL AND GROUND NO. 2.1 & 2.2 OF THE ASSESSEES CROSS OBJECTION. WE DO NOT FIND ANY INFIRMITY IN THE SAI D OBSERVATION OF THE LD. CIT(A) THAT THE REBATE AND DISCOUNT WERE AGAINST TH E PURCHASES OF MATERIAL MADE BY THE ASSESSEE FOR EXECUTION OF CONT RACT IN THE COURSE OF BUSINESS AND THE INVESTMENT IN FDR WAS NECESSARY FO R THE PURPOSE OF BUSINESS OF THE FIRM AS THE SAME WAS PLEDGED AS SEC URITY WITH THE DEPARTMENT AT THE TIME OF PARTICIPATING/PROCURING T HE TENDER/CONTRACT WORKS, THEREFORE, BOTH THE INCOME WAS PART AND PARC EL OF THE BUSINESS INCOME, SO THERE WAS NO NECESSITY TO REDUCE THE GRO SS TURNOVER. IN THAT VIEW OF THE MATTER, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTMENTAL APPEAL. 14. IN THE RESULT, APPEAL OF THE DEPARTMENT AS WELL AS CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. (ORDER PRONOUNCED IN THE COURT ON 12 TH JUNE, 2014). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 12 TH JUNE, 2014. 9 VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.