Dy.CIT, Circle-1, Khammam V. M/s Sri Sai Ram Transport, Khammam

ITA 102/HYD/2013

• Counselvise Citation: 10222514 RSA 2013
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 31-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B RAMA KRISHNA
• Assessee Lawyers: M CANDRAMOULESWARA RAO
• Keywords: Business income; Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO.102/HYD/2013 (ASSESSMENT YEAR 2008 - 09) DY. COMMISSIONER OF INCOME - TAX CIRCLE 1, KHAMMAM V/S. M/S. SRI SAI RAM TRANSPORT, KHAMMAM ( PAN - AAZFS 2695 C ) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B.RAMAKRISHNA DR RESPONDENT BY : SHRI M.CANDRAMOULESWARA RAO DATE OF HEARING 01 . 12 .2014 DATE OF PRONOUNCEMENT 03.12.2014 O R D E R PER P.M.JAGTAP, ACCOUNTANT MEMBER: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX(APPEALS) VIJAYAWADA, WHEREBY HE ESTIMATED THE INCOME O F TH E ASSESSEE BY APPLYING A NET PROFIT RATE OF 5% AS AGAINST 10% A PPLI E D BY THE ASSESSING OFFICER AND THAT TOO AFTER INCLU D IN G THE AMOUNT O F INCENTIVE AND BONUS IN TH E GROSS RECEIPTS. 2. THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHIP FIRM WHICH IS ENGAGED IN THE BU S IN ES S OF TRANSPORT CONTRACTOR. THE RETURN OF INCOME F OR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 14.10.2008 DECLARING TOTAL IN C OM E OF RS.11,55,210. DUR ING THE COU R SE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD NO T PRODUCE THE BOOK S O F ACCOUNT AS WELL AS THE SUPPORTING VOUCHERS AND BILLS FOR VERIFICATION OF THE ASSESSING OFFICER. THE ASSESSING OFFICER I TA NO. 1 02 /HYD/2013 M/S. SRI SAI RAM TRANSPORT, KHAMMAM 2 TH E R E FORE, REJECTED THE BOOK RESULTS DECL A RED BY THE ASSESSEE AND ESTIM A TED THE BUSINESS INCOME O F TH E ASSESSEE BY APPLYING A NET PROFIT RATE O F 10% TO THE GROSS TRANSPORT RECEIPTS OF R S .3,65,22,768. THE AMOUNTS O F INCENTIVE AND BONUS RECEIVED BY THE ASSESSEE FROM ITS CLIENTS TOTALING TO RS .11,49,056 W ERE S EPAR A TELY ADDED BY THE ASSESSING OFFICER TO THE NET PROFIT OF 10% ADOPTE D BY HIM, AND ACCORDINGLY , THE TOTAL INCOME O F TH E ASSESSEE WAS COMPUTED BY HIM AT RS.48,01,331 IN TH E ASSESSMENT COMPLET E D UNDER S. 143 ( 3 ) VIDE ORDER DATED 27.12.2010. 3. AGAI N ST THE ORDER PASSED BY THE ASSESSING OFFICER UN D ER S.143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE TH E LEARNED CIT(A). DURIN G TH E COU R SE OF AP PELLATE PROCEEDINGS , IT WAS BROUGHT TO THE NO T I C E OF THE LEARNED CIT(A) BY TH E ASSESSEE THAT THE DEPARTMENT ITSELF HAD ESTIM A TED PROFIT AT 5% ON GROSS TRANSPO R T RECEIPTS IN A COMPARABLE CA S E OF M /S. SRI VENK A TESW A RA S W AMY L ORRY SERVI C E, WHICH WAS RESTRICTED BY THE LEARNED CIT(A) TO 4%. IT WAS ALSO POIN T ED OUT THAT THE TRIBUNAL GRANTED FURTHER RELIEF BY ALLOWI NG DEPRECIATION SEPARATELY FROM TH E INCOME SO ESTIM A TED. IT WAS SUBMITTED THAT THE ASSESSEE FIRM IN FACT DID NO T HAVE ANY VEHICLES OF ITS OWN AND THE WORK OF TRANSPORT CONTRACT WAS ENTIRELY EXECUTED BY ENGAGING VEHICLES OF OTH E RS. IT WAS CONTENDED THAT T HE ASSESSEE FIRM THUS WAS REQUIRED TO SHARE ITS PROFIT MARGIN WITH THE VEHICLE OWNERS, WHICH CERTAINLY BROUGHT DOWN ITS PROFIT MARGIN. AS REGARDS THE ADDITIONS SEPARATELY MADE BY THE ASSESSING OFFICER ON AC C OUN T OF INCENTIVE AND BONUS, RELIANCE WAS PLA CED ON B EHALF OF THE ASSESSEE ON THE DECISION OF HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF MADDI SUDARSHANAM OIL MILLS CO. V/S. CIT (37 ITR 369) - AP , WH E REIN IT WAS HELD THAT ONCE THE BOOK S O F ACCOUNT A RE REJECTED BY THE AUTHO R I T IES AND FLAT RATE IS APPLIED FOR ESTIMATING THE BOOK I TA NO. 1 02 /HYD/2013 M/S. SRI SAI RAM TRANSPORT, KHAMMAM 3 PROFIT, NO OTHER ADDITION CAN B E AMADE SEPARATELY RELYING ON THE VERY SAME BOOKS O F AC C OUNT. 4. THE CIT(A) FOUND MERIT IN THE SUBMISSIONS MADE ON BEHALF O F THE ASSESSEE, AND ACCORDINGLY RESTRICTED THE ESTIM A TION OF INCOME MADE BY THE ASSESSING OFFICER BY ADOPTING THE NET PROFIT RATE O F 5% INSTEAD OF 10% APPLIED BY TH E ASSESSING OFFICER, AND THAT TOO BY I N CL UD ING THE AMOUNTS OF INCENTIVE AND BONUS IN TH E GROSS RECEIPTS OF THE TRANSPORT BUSINESS, BY RECORDING THE FOL LO W IN G OBSERVATION S IN PARAGRAPH 5 OF THE IMPU G N E D ORDER - . 5 . I HAVE GONE THROUGH THE AVERMENTS MADE BY THE APP E L LANT AND ALSO SEEN THE ASSESSMENT ORDER BESIDES PERUSING ALL OTHER IN F ORM A TION AVAILABLE ON RECOR D S. THE RE I S NO DISPUTE THAT I T IS THE CASE OF A TR A NSPO R TER, WHO SUPPLIES VEHICLES TO TH E NEEDY BY CONTA C TIN G VEHICLE OWNERS. I N THE P R OCESS, H E EARNS INCOM E FROM TH E AMOUN T S RECEIVED AND PAID, I.E., DIFFERENCE F R OM R E CEIP T S AND PAYM E N T S. IT IS FU R TH E R ASCERTAINED THAT FOR THE APPELL ANT, IT IS ON E COMPONENT OF THE TURNOVER. IT I S IMPORTANT TO NOTE HERE THAT SATISFIED WITH THE SERVICES RENDERED THE HIRERS OF TH E VEHICLES GRANT SOME MORE AMOUNTS STYLED AS INCENTIVES, BONUS, ETC. WHICH ALSO FO R MS SECOND PART OF TURNOVER. THU S , THESE TW O ITEMS OF RECEIPTS CONSTITUTES TOTAL TURNOVER OF TH E APPELLANT FOR THE Y E AR UNDER CONSIDERATION . N OW THE ASSESSING OFFICER WHILE RE S ORTING TO ESTIMATION ADOPTED A RATE OF 10% ON THE FIRST P A RT OF TURNOVER A M OUNTIN G TO RS.3,65,22,758/ - O N LY, WHICH IS THE FIRST DISPUTE. I N SO FAR AS TH E FACT THAT IT CON S TITUTES FIRST PART OF THE TURNOVER, THERE IS NO DISPU T E. RE G AR D ING ESTIMATION AT 10 % IT IS DISPUTED, IN THE SEN S E BY QUOTING A DECISION OF HYDERABAD T RIBUNAL IN TH E CA S E OF M/S. SRI VENKA TESWARA SWAMY LORRY S E RVI C E V/ S. ITO SURYAPET, FOR TH E ASSESSMENT YEAR 2005 - 06 VIDE ORD E R IN ITA N O.903/HYD/2009 , D ATED 25.11.20009, WHEREIN UNDER SI M ILAR CIRCUMSTANCES A 5% ESTIMATION ON TURNOVER WAS HELD TO B E REASONABLE. S INCE THE AO HAS NOT GIVEN ANY COGENT REASONS AS TO WHY HE WAS ADOPTING 10%, I AGREE WITH TH E CONTENTION OF TH E AR THAT IT WAS EXCESS I VE AND TAKING TOTALITY O F FACTS AND CIR C UM S TANCES INTO ACCOUNT, I DI R ECT THE AO TO ADOPT PERCENTAGE OF ESTIMATION AT 5% INSTEAD OF 10% ADOPTED BY HIM. IN AS MUCH A S THE SECOND PART OF I TA NO. 1 02 /HYD/2013 M/S. SRI SAI RAM TRANSPORT, KHAMMAM 4 TURNOVER CONSISTING OF BONUS, INCENTIVES ETC. FOR BETTER PERFORM A N C E AND THE THINGS LIKE THAT IS CONCERNED, THE ASSESSING OFFICER HAS AD D ED THE ENTIR E AMOUNT O F RS .11,49,056/ - TO THE TOTAL IN C OM E WHIL E FINALISIN G THE ASSESSMENT PROCEEDINGS. THE APPELL A N T S STAND, A S EXPLAIN E D BY THE AR IS THAT SUCH R E CEIP T S OF BONUS; INCENTIVES, ETC. WERE RECEIVED IN TH E COU R SE OF BU S IN E SS ACTIVITIES AND FOR THE SAME ACTIVITIES, BUT NOMENCLATURE I S CHANGED. THE STAND O F TH E A R THAT SUCH SECOND P A RT OF TURN O VER IS NO T A NEW ITEM AND IN THE EARLIER YEARS THE DEP ARTMENT HAS ACCEPT E D THE SAME AS RETURNE D , AS FORMING P A RT OF TURNOVER, H A S TO B E APP REC IATED HERE ALSO. FOR THI S Y E AR, THE DEP ARTMEN T HAS CHANGED THE SAME AS INCOME INSTEAD OF TURNOVER, FOR WHICH NO MATERIAL WAS BROUGHT ON RECORD. THE AVERMENTS OF THE AR ARE AP PRECIATE D AND I AGREE WITH THE CON T ENTION OF THE AR THAT THE SECOND PART OF THE TURNOVER IS IN FACT TU RN O VER ONLY, BUT NOT INCOME. IN TH E CIR C UM S T A NCES, THE AO IS DIRECTED TO TREAT THE SECOND P A RT ALSO AS TURNOVER, BUT NO T IN C OM E . I N TH E CIR C UM S TANCES TURNO V ER ON WHICH 5% ESTI M ATION HAS TO BE MADE IS AT RS.3,76,71K , 814/ - , WHICH IS AT RS.18,83,591/ - , WHICH SHALL FINALLY PREVA I L AT THE COST OF THE INCOME DETERMINED BY THE ASSESSING OFFICER AT RS.48,01,331/ - . 5 . AGGRI E VED BY THE ORDER OF THE LEARNED CIT(A), REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL ON FOLLOWI NG GROUNDS - 1. THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AS PER LAW AND ON FACTS. 2. THE LD. CIT(A) HAS FAILED TO CONSIDER THAT THE FACTS OF THE CASE OF THE ASSESSEE ARE DIFFERENT FROM THAT OF THE CASE OF M/S. SRI VENKATESWARA SWAMY LORRY SERVICE BASING ON WHICH ESTIMATI ON OF5% IS DIRECTED. 3. THE LD CIT(A) OUGHT TO HAVE CONFIRMED THE ESTIMATION MADE BY THE A.O. AS THE ASSESSEE HAS FAILED TO PRODUCE THE BOOKS OF ACCOUNT AND ALSO VOUCHERS/BILLS. 4. THE LD. CIT(A) OUGHT TO HAVE PALCED A RELIANCE ON THE DECISION OF THE JUR ISDICTIONAL TRIBUNAL BENCH A OF HYDERABAD IN THE CASE OF M/S. KONDAPALLI TRANSPORT WHEREIN THE PROFIT WAS ESTIMATED AT 7% BY THE TRIBUNAL. I TA NO. 1 02 /HYD/2013 M/S. SRI SAI RAM TRANSPORT, KHAMMAM 5 5. THE LD. CIT(A) IS NOT CORRECT IN DIRECTING THE ASSESSING OFFICER TO TREAT THE INCENTIVE AND BONUS AS TURNOVER SINCE THE ASSESSEE HIMSELF HAS STATED THAT THE RECEIPT OF BONUS AND INCENTIVE WAS FOR THE SAME ACTIVITIES AND THE NOMENCLATURE IS CHANGED. 6 . THE LD. CIT(A) OUGHT NOT TO HAVE DIRECTED TO ESTIMATE THE PROFIT ON INCENTIVE AND BONUS, A S THE ASSESSEE NEED NOT INCUR ANY EXP FOR EARNIN G SUCH IN CENTIVE/BO NUS . 7. ANY OTHER GROUND(S0 THAT MAY BE URGED AT THE TIM E OF H E ARING. 6 . WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. GROUNDS N O.1 A N D 7 RAISED BY THE ASSESSEE IN THIS APPEAL ARE GENERAL SEEKING NO SPECIFIC ADJU D I C ATION. AS REGARDS THE ISSUE INVOL V ED IN GROUNDS NO.2 TO 4 REL A TING TO THE ADOPTION OF THE N E T PROFIT RATE FOR ESTIM A TING THE INCOME O F THE ASSESSEE FROM TRANSPORT BU S IN E SS, T HE LEARNED DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE DECISION OF THE COORDIN A TE BENCH OF THIS T RIBUNAL IN THE C A S E OF KONDAPALLI T RANSPORTS, WHE RE IN A NET P R OFIT RATE OF 7% WAS ADOPTED BY THE TRIBUNAL. HE HOWEVER, HAS NOT PLACED ON RECORD A COPY OF TH E ORDER PASSED BY TH E TRIBUNAL IN TH E SAID CA S E TO SHOW THAT THE REL E VANT FACTS INVOL V ED IN THE CI T ED CASE ARE SIMILAR TO THE FACTS OF THE PRESENT CA S E. ON TH E OT H E R HAND, THE LEARNED CIT(A) IN HIS IMPUGNED ORDER HAS RELIED ON THE CASE OF M /S. SRI VENK A TESWARA S W AMY L ORRY SERVICE (SUPRA), WH E REIN THE INCOME O F T H E ASSESSEE I N A COMPARABLE CA S E WAS ESTIM A TED BY THE ASSESSING OFFICER HIMSELF BY APPLYING A PROFIT RATE OF 5% ON GROSS RECEIPT , WHICH WAS RESTRICTED BY THE LEARNED CIT(A) TO 4% AND TH E TRIBUN A L GRANTED FURTHER RELI E F BY ALLO W IN G DEPRECIATION SEPARATELY FROM THE PROFIT SO ESTIMATED. IN THE PR E SEN T CA S E, THE ASSESSEE FIRM IS NO T HAVING VEHICLES OF ITS OWN AND THUS, TH E RE IS NO QUESTION OF CLAIMING ANY DEPRECIATION ALLOWANCE . THE ENTIRE BU S IN E SS O F TRANSPO R TATION IS CARRIED ON BY THE ASSESSEE BY ENGAGING THE VEHICLES OF THIRD PARTIES, AND AS RIGHTLY I TA NO. 1 02 /HYD/2013 M/S. SRI SAI RAM TRANSPORT, KHAMMAM 6 CON T ENDED ON BEHALF O F TH E ASSESSEE BEFORE THE LEARNED CIT(A) AS WELL AS BEFORE US, THE NET PROFIT MARGIN O F THE ASSESSEE IS BOUND TO BE LOWER SINCE TH E ASSESSEE IS REQUIRED TO SHARE SOME PROFIT WITH THE OWNERS OF THE VEHICLES. HAVING REGARD TO ALL TH E FACTS AND CIRCUMSTANCES OF THE C ASE, WE ARE O F THE VIEW THAT THE NET PROFIT RATE OF 5% APPLIED BY THE LEARNED CIT(A) TO ESTIM A TE THE INCOME OF THE ASSESSEE FROM TR A N SP O R T BUSINESS IS QUITE FAIR AND REASONABLE, AND UPHOLDING THE IMPU G N E D ORDER OF THE CIT(A) ON THIS ISSUE, WE DISMISS GROUND NOS.2 TO 4 OF THE R E VENUE S APPEAL. 7 . AS REGARDS THE ISSUE INVOLVED IN GROUNDS NO.5 AND 6 REL A TING TO THE IN CLUSION OF IN C ENTIVE AND BONUS BY THE LEARNED CIT(A) IN TH E GROSS TRANSPORT RECEIPTS FOR THE PU R PO S E OF APPLYING THE NET PRO F IT RATE INSTEAD O F ADDING THE SAID AMOUN T S SEPARATELY TO THE TOTAL IN C OM E O F THE ASSESSEE AS DON E BY THE ASSESSING OFFICER, THE LE ARNED DEPARTMENTAL REPRESENTATIVE HAS SUBMI T TED THAT THE ASSESSEE IS GENERALLY NOT REQUIRED TO INCUR ANY EXPENDITURE FOR EARNIN G TH E INCOME IN TH E N A TURE OF INCENTIVE AND BONUS. HE HAS CONTENDED THAT THE AMOUN T O F IN C EN T IVE AND BONUS THUS IS REQUIRED TO BE ADDED SEP A RATELY FOR TH E PU RP OSE O F DETERMINING THE INCOME O F T HE ASSESSEE FROM TR A N S PORT BUSINESS AND TH E LEARNED CIT(A) IS NO T JUSTIFIED IN IN C LU D IN G THE SAME IN TH E GROSS RECEIPTS FOR THE PU R PO S E OF APPLYING THE NET PROFIT RATE. WE ARE UNABLE TO ACCE PT THIS CO N TENTION OF THE LD DEPARTMENTAL REPRESENTATIVE . AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE INCOME BY WAY OF INCENTIVE AND BONUS IS DIRECTLY LINKED TO THE TRANSPORT BUSINESS OF THE ASSESSEE, AND SINCE THE SAME, FORMS AN I NTEGRAL PART OF THE GROSS RECEIPTS O F THE ASSESSEE S TRAN S PORT BU S IN E SS, I T CANNO T B E ADDED SEP A R A TELY FOR THE PU RP OSE O F COMPU T IN G THE INCOME O F THE ASSESSEE BY APP L YING A NET PROFIT RATE. MOREOVER, ON C E THE BOOKS O F ACCOUNT AR E REJECTED AND THE INCOME O F THE ASSESSEE IS ESTIM A TED BY APPLYING A NET PROFIT RATE, THE NET PROFIT RATE SO ADOPTED IS REQUIRED TO BE APPLIED TO THE GROSS RE C EIP T S O F THE TR A NSPORT I TA NO. 1 02 /HYD/2013 M/S. SRI SAI RAM TRANSPORT, KHAMMAM 7 BUSINESS AND AS HELD BY THE HON'BLE JURI S DIC T IONAL HIGH COURT IN TH E CASE OF MADDI SUDARSHANAM O IL M ILLS CO. (SUPRA), THE BUSIN E SS RECEIPTS REL A TIN G TO TH E S AME BUSINESS, SUCH AS INCENTIVE AND BONUS CANNOT B E ADDED SEP ARA TELY. WE THER E FOR E , UPHOLD TH E IMPUGN E D ORDER O F THE LEARNED CIT(A), WHEREBY HE INCLUDED THE AMOUNT O F IN C EN T IVE AND BON US IN GROSS RE C EIP T S OF BUSINESS, FOR THE PU R PO S E OF ESTIM A TIN G THE INCOME O F THE ASSESSEE F R OM T H E T R A N S PORT BUSINESS BY APPLYING A NET P R O F I T RATE, AND DI S MISS GROUNDS NO.5 AND 6. 8 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 3 RD D E CEMBER, 2014 SD / - SD/ - ( ASHA VIJAYARAGHAVAN) ( P.M.JAGTAP ) JUDICIAL MEMBER ACCOUNTANT MEMBER DT/ - 3 R D DECEMBER, 2014 COPY FORWARDED TO: 1. M/S. SRI SAI RAM TRANSPORT, 2 - 171, BALAJI NAGAR, KHANAPURAM HAVELI, KHAMMAM 2 . DY. COMMISSIONER OF INCOME - TAX CIRCLE 2 , KHAMMAM 3. COMMISSIONER OF INCOME - TAX(APPEALS), VIJAYAWADA 4. 5. COMMISSIONER OF INCOME - TAX VIJAYAWADA DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD. B.V.S