Sri P Ramaswamy & Sons, Hyderabad V. ITO,Ward-8(2), Hyderabad

ITA 1125/HYD/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7645 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 04-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: K A SAI PRASAD
• Section: 40A(3); 133A; 147; 148; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.1125/HYD/2014 ASSESSMENT YEAR 2008-2009 M/S. P. RAMASWAMY & SONS SHAMSHABAD, R.R. DIST., PAN AAHFP7372H VS. THE INCOME TAX OFFICER, WARD 8(2) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. K.A. SAI PRASAD FOR REVENUE : MR. RAJAT MITRA DATE OF HEARING : 09.10.2014 DATE OF PRONOUNCEMENT : 07.11.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS IS AN ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-III, HYDERABAD DATED 03 RD MARCH, 2014. ASSESSEE IS AGGRIEVED ON ESTIMATION OF TURNOVER AND INCOME THER EON AND NOT ALLOWING REMUNERATION AND SALARY. THE GROUNDS R AISED BY ASSESSEE ARE AS UNDER: 2. THE LEARNED CIT(A)-III IS INCORRECT IN PRESUMIN G THAT THE APPELLANT PRAYED FOR DOWNWARD REVISION OF TURNOVER WHICH WAS ESTIMATED AT RS.40,00,000 BY THE ASSESSING OFFICER. 3. THE LEARNED CIT(A)-III OUGHT TO HAVE HELD THAT PROVISIONS OF SECTION 44AF ARE APPLICABLE TO THE APPELLANTS CASE AS THE TURNOVER WAS ESTIMATED AT 2 ITA.NO.1125/HYD/2014 MR. P. RAMASWAMY & SONS, R.R. DISTRICT. RS.40,00,000 AND NOT EXCEEDED THE THRESHOLD LIMITS PRESCRIBED U/S. 44AF. 4. THE LEARNED CIT(A)-III IS INCORRECT IN NOT DIREC TING THE A.O. TO COMPUTE INCOME AT 8% AS PER PROVISIONS OF SEC. 44AF AND ALLOW DEDUCTION TOWARDS REMUNERATION TO WORKING PARTNERS AND INTEREST ON CAPITAL THEREFROM. 5. THE LEARNED CIT(A)-III IS INCORRECT IN NOT DELET ING THE ADDITION MADE BY A.O. APPLYING PROVISIONS OF SECTIO N 40A(3) AFTER ESTIMATING INCOMES AND IN A CASE WHERE PROVISIONS OF SECTION 44AF ARE APPLICABLE. 2. BRIEFLY STATED, ASSESSEE IS A PARTNERSHIP FIRM CARRYING ON RETAIL CLOTH BUSINESS. A SURVEY UNDER S ECTION 133A WAS CONDUCTED ON 21.02.2008. ASSESSEE HAS NOT FILED RETURN OF INCOME EARLIER. THEREFORE, NOTICE UNDER SECTION 148 WAS ISSUED CALLING FOR RETURN OF INCOME. AS THERE WAS NO RESP ONSE FROM ASSESSEE, A.O. AFTER ISSUING A SHOW CAUSE NOTICE C OMPLETED THE ASSESSMENT UNDER SECTION 144 OF IT ACT INTER AL IA, ESTIMATING THE TURNOVER OF ASSESSEE AT RS. 40 LAKHS AND PROFIT AT 15% AT A TURNOVER AT RS. 6 LAKHS. IN ADDITION, H E ALSO DISALLOWED THE CASH PAYMENTS MADE IN EXCESS OF RS.2 0,000 AGGREGATING TO RS.18,04,189 AS NOTICED BY HIM IN TH E COURSE OF SURVEY. THUS TOTAL INCOME WAS DETERMINED AT RS.24,0 4,190. LD. CIT(A) HOWEVER, DID NOT ADMIT ANY ADDITIONAL EV IDENCE NOR ALLOWED ANY RELIEF INCLUDING THE ADDITIONAL GROUND RAISED WITH REFERENCE TO CLAIM OF REMUNERATION AND INTEREST. AC CORDINGLY, ASSESSEE IS AGGRIEVED ON THE ABOVE ISSUES. 3. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE FACTS PLACED ON RECORD, WE ARE OF THE OPINION THAT BOTH A.O. AND LD. CIT(A) HAVE ERRED IN DETERMINING THE TOTAL INCOME UNDER SECTION 144 AT A HIGHER FIGURE. AS SEE N FROM THE DISALLOWANCE UNDER SECTION 40A(3), THE TOTAL PURCHA SE BY 3 ITA.NO.1125/HYD/2014 MR. P. RAMASWAMY & SONS, R.R. DISTRICT. ASSESSEE MADE IN CASH SEEMS TO BE AN EXTENT OF RS.1 8,04,182. ON THAT BASIS, WITHOUT ANY SUPPORT THEREOF, THE TUR NOVER WAS ESTIMATED AT RS.40 LAKHS PER YEAR. THIS ITSELF IS A N ARBITRARY FIGURE. IN ADDITION, THE A.O. ALSO ESTIMATED THE PR OFIT AT 15% WITHOUT ANY COMPARABLE CASE. LD. CIT(A) ALSO WITHOU T ANY JUSTIFICATION REDUCED IT TO 9% WHEN ASSESSEE WAS RE QUESTING THAT THE INCOME CAN BE ESTIMATED AT 5% AS PER SECTI ON 44AF. AS THERE IS NO JUSTIFICATION FOR ESTIMATING BOTH TU RNOVER AS WELL AS RATE OF PROFIT AND IN THE SURVEY NOTHING WAS FOU ND OUT, AS CAN BE SEEN FROM THE ORDER NO INCRIMINATING MATERIA L WAS FOUND WITH ASSESSEE, WE ARE NOT IN A POSITION TO AP PRECIATE THE ACTION OF THE AUTHORITIES. AT THE SAME TIME, ASSESS EE HAS NOT FILED RETURN OF INCOME NOR FURNISHED ANY BOOKS OF A CCOUNTS. ASSESSEE ALSO HAS NOT QUESTIONED THE PROCEEDINGS UN DER SECTION 147 OR THE ORDER UNDER SECTION 144. IN VIEW OF THIS, WE ARE OF THE OPINION THAT ASSESSEES PROFIT CAN BE ES TIMATED UNDER THE PROVISIONS OF SECTION 44AF AT 5% ON THE ESTIMA TED TURNOVER OF RS. 40 LAKHS. THIS WILL JUSTIFY ON THE GIVEN FACTS. 4. ASSESSEES CLAIM OF DEDUCTION OF REMUNERATION A ND SALARY CANNOT BE ALLOWED IN VIEW OF PROVISIONS OF S ECTION 184(5) WHICH IS AS UNDER : 184. ASSESSMENT AS A FIRM.- (1) A FIRM SHALL BE ASSESSED AS A FIRM FOR THE PURPOSES OF THIS ACT, IF (I) THE PARTNERSHIP IS EVIDENCED BY AN INSTRUMEN T ; AND (II) THE INDIVIDUAL SHARES OF THE PARTNERS ARE SPEC IFIED IN THAT INSTRUMENT. . . 4 ITA.NO.1125/HYD/2014 MR. P. RAMASWAMY & SONS, R.R. DISTRICT. 5) NOTWITHSTANDING ANYTHING CONTAINED IN ANY OTHER PROVISION OF THIS ACT, WHERE, IN RESPECT OF ANY ASS ESSMENT YEAR, THERE IS ON THE PART OF A FIRM ANY SUCH FAILU RE AS IS MENTIONED IN SECTION 144, THE FIRM SHALL BE SO ASSE SSED THAT NO DEDUCTION BY WAY OF ANY PAYMENT OF INTEREST , SALARY, BONUS, COMMISSION OR REMUNERATION, BY WHATE VER NAME CALLED, MADE BY SUCH FIRM TO ANY PARTNER OF SU CH FIRM SHALL BE ALLOWED IN COMPUTING THE INCOME CHARG EABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION AND SUCH INTEREST, SALARY, BONUS, COMMI SSION OR REMUNERATION SHALL NOT BE CHARGEABLE TO INCOME-T AX UNDER CLAUSE (V) OF SECTION 28. 4.1 IN VIEW OF THE SPECIFIC PROVISION OF NOT ALLOW ING INTEREST, SALARY, BONUS, COMMISSION OR REMUNERATION , IF THE ASSESSMENT HAS BEEN COMPLETED UNDER SECTION 144, AS SESSEES CONTENTION THAT REMUNERATION/INTEREST SHOULD BE ALL OWED CANNOT BE CONSIDERED. THIS GROUND, REJECTED BY LD. CIT(A) BY NOT ADMITTING THE GROUND HOWEVER, CANNOT BE CONSIDE RED IN VIEW OF SPECIFIC PROVISIONS OF SECTION 184(5). 5. COMING TO THE OTHER SUBSTANTIAL ADDITION CONTES TED IN GROUND NO.5 IS WITH REFERENCE TO DISALLOWANCE UN DER SECTION 40A(3) . ASSESSING OFFICER NOTICED THAT ASSESSEE HAS PURCHA SED VARIOUS ITEMS IN CASH AND DISALLOWED THE ENTIRE AMO UNT UNDER SECTION 40A(3). IT WAS THE CONTENTION OF THE ASSESS EE THAT ONCE INCOME IS ESTIMATED, PROVISIONS OF SECTION 40A(3) C ANNOT BE INVOKED. THERE IS JUSTIFICATION IN ASSESSEES CLAIM . THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT-II VS. HINDUSTAN EQUIPMENT P. LTD., 30 TAXMANN.COM 295 (M. P.) CONSIDERED THE PROVISIONS OF SECTION 40A(3) AND HEL D THAT WHERE PROFIT WAS ESTIMATED BY APPLYING NET PROFIT R ATE, THERE WAS NO SCOPE OF FURTHER DISALLOWANCE UNDER SECTION 40A(3) IN RESPECT OF SUCH PROJECTS. SINCE BOOKS OF ACCOUNTS A RE REJECTED AND TURNOVER ITSELF IS ESTIMATED AND NET PROFIT WAS DETERMINED 5 ITA.NO.1125/HYD/2014 MR. P. RAMASWAMY & SONS, R.R. DISTRICT. AT 5%, PROVISIONS OF SECTION 40A(3) CANNOT BE INVOK ED IN THIS CASE. WE ARE SUPPORTED BY THE FOLLOWING JUDGMENTS/ DECISIONS (I) ARMOUR CHEMICALS LTD. VS. JCIT 17 SOT 467 (MUM) (ITAT). (II) CIT VS. AGARWAL ENGG. CO. 156 TAXMAN 40 (P & H ) (HC) (III) CIT VS. SMT.SANTOSH JAIN 159 TAXMAN 392 (P & H) (HC) (IV) CIT VS. PURUSAHOTHAMLAL TAMARKAR 270 ITR 314 (MP). (V) INDWELL CONSTRUCTIONS VS. CIT 232 ITR 776 (AP) (VI) SINGHAL BUILDERS CONTRACTORS VS. ADDL. CIT 46 SOT 308. 5.1. THEREFORE, DISALLOWANCE OF RS.18,04,182 MADE BY A.O. UNDER SECTION 40A(3) IS DIRECTED TO BE DELETED . ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE INCOME BY EST IMATING THE PROFIT AT 5% ON THE TURNOVER OF RS. 40 LAKHS. ACCOR DINGLY, GROUNDS ARE CONSIDERED AS PARTLY ALLOWED. 6. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.11.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 07 TH NOVEMBER, 2015. VBP/- 6 ITA.NO.1125/HYD/2014 MR. P. RAMASWAMY & SONS, R.R. DISTRICT. COPY TO 1. M/S. P. RAMASWAMY & SONS, SHAMSHABAD, R.R. DIST. C/O. CH. PARTHASARATHY & CO., 1-1-298/2/B/3, 1 ST FLOOR, SOWBHAGYA AVENUE, STREET NO.1, ASHOKNAGAR, HYDERABAD 500 020. 2. THE INCOME TAX OFFICER, WARD 8(2), HYDERABAD. 3. COMMISSIONER OF INCOME TAX (APPEALS)-III, HYDERA BAD. 4. COMMISSIONER OF INCOME TAX-II, HYDERABAD. 5. D.R. ITAT B BENCH, HYDERABAD