Ch. Ravi Prasad, Hyd, Hyderabad V. ITO, Ward-11(3), Hyd, Hyderabad

ITA 1179/HYD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6424 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 23-09-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: P RAVI SESHAGIRI PRASAD
• Keywords: Condonation of delay
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1179/HYD/2015 ASSESSMENT YEAR: 2008-09 CH. RAVI PRASAD, HYDERABAD PAN ADFPC 1131 N VS. INCOME-TAX OFFICER, WARD 11(3), HYDERABAD. (ASSESSEE) (RESPONDENT) ASSESSEE BY : SHRI P. RAVI SESHAGIRI PRASAD REVENUE BY : SHRI B. KURMI NAIDU DATE OF HEARING 17-05-2016 DATE OF PRONOUNCEMENT 17 -06-2016 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) - 5, HYDER ABAD, DATED 11/05/2015 FOR AY 2008-09. 2. ON PERUSAL OF RECORD, WE FIND THAT THERE WAS A D ELAY OF 5 DAYS IN FILING THE APPEAL BEFORE THE ITAT. THE ASSESSEE FILED A PETITION REQUESTING FOR CONDONATION OF DELAY STATING THEREIN THAT THE ASSESSEE WAS ILL AT THE RELEVANT POINT OF TIME AND TO THIS E FFECT A COPY OF THE MEDICAL CERTIFICATE WAS ANNEXED TO THE PETITION. TH E ASSESSEE ALSO FILED AN AFFIDAVIT AFFIRMING THE REASONS MENTIONED IN THE CONDONATION PETITION. 3. AFTER HEARING THE PARTIES, WE ARE OF THE VIEW TH AT SINCE THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE IN FILIN G THE APPEAL BEFORE 2 ITA NO. 1179/H/15 CH. RAVI PRASAD US WITHIN THE DUE DATE, THE DELAY OF 5 DAYS IN FILI NG THE APPEAL `IS CONDONED AND THE APPEAL IS ADMITTED FOR ADJUDICATIO N. 4. THE ASSESSEE HEREIN IS AN INDIVIDUAL AND IS A MA RKETING EXECUTIVE OF. V.V.R HOUSING PRIVATE LIMITED PURELY WORKING ON COMMISSION BASIS, BUT DO NOT HAVE ANY SEPARATE BUSI NESS/INCOME OTHER THAN COMMISSION RECEIVED ON THE PLOTS SOLD TH ROUGH HIS EFFORTS. FOR THE ASSESSMENT YEAR 2008-09, THE ASSESSEE HAS F ILED RETURN OF INCOME ON 29-09-2008 ADMITTING AN INCOME OF RS. 9,9 5,940/-. THE CASE WAS SELECTED FOR SCRUTINY AND A NOTICE UNDER S EC. 143 (2) &142(1) OF THE INCOME TAX ACT,1961 (IN SHORT ACT) WAS ISSUED. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT UNDER SE CTION 143(3) R.W.S. 144 ON 24.12.2010 AND DETERMINED THE TOTAL I NCOME AT RS.19,96,782/- BY MAKING THE FOLLOWING ADDITIONS: 1. ADDITION 50% OF THE TOTAL EXPENDITURE ON ACCOUN T OF CAR HIRE CHARGES, VEHICLE MAINTENANCE & TRAVELLING EXPENSES RS15,22,830/- I.E., RS.7,11,415/-: 2. ADDITION 50% OF THE TOTAL EXPENDITURE ON ACCOUN T OF ADVERTISEMENT EXPENSES RS.6,07,800/. I.E., RS.3,03 ,900/-: 5. AS REGARDS GROUND NO. 2, ACCORDING TO THE ASSESS ING OFFICER, THE ASSESSEE HAS INCURRED TOTAL EXPENDITURE ON ACCO UNT OF CAR HIRE CHARGES, VEHICLE MAINTENANCE & TRAVELLING EXPENSES ETC, RS15,22,830/-. THESE EXPENSES ITSELF CONSTITUTES NE ARLY 1/3RD OF THE COMMISSION RECEIVED. THIS PERCENTAGE WHEN COMPARED TO THE BUSINESS DONE IS VERY HIGH, SINCE NO VOUCHERS, BILL S, DETAILS OF THE PARTIES TO WHOM PAYMENTS HAVE BEEN PAID ARE NOT PRO DUCED, 50% OF THE ABOVE EXPENDITURE DEBITED TO P&L A/C IS DISALLO WED AND MADE ADDITION OF RS.7,11,415/-. 6. BEFORE THE CIT(A), THE ASSESSEE OBJECTED FOR SUC H ADDITION STATING THAT FOR THE PURPOSE OF ACTIVITY CARRIED ON BY HIM HE HAS TO HIRE CARS FOR TAKING THE INTENDING PURCHASERS FROM THEIR RESIDENCE TO THE 3 ITA NO. 1179/H/15 CH. RAVI PRASAD SITE FOR SHOWING THE AREA AND AS SUCH VEHICLE MAINT ENANCE AND TRAVEL EXPENSES WERE INCURRED. THE ASSESSEE FURTHER STATED THAT ALL THE CAR HIRE CHARGES, VEHICLE MAINTENANCE AND TRAVELLING EX PENSES WERE INCURRED FOR THE PURPOSE OF BUSINESS ACTIVITY AND T HEREFORE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT J USTIFIED. 7. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) RESTRICTED THE DISALLOWANCE TO 30% AS AGAINST 50% M ADE BY THE AO BY OBSERVING AS UNDER: 5.3 PERUSED THE SUBMISSIONS OF THE APPELLANT AND T HE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSES SMENT ORDER. AS COULD BE SEEN FROM THE FACTS OF THE CASE, THE APPELLANT SHOWN TO HAVE EARNED COMMISSION OF RS.45,62,801/- F ROM REAL ESTATE COMPANY M/S.V.V.R.HOUSING PVT. LTD. FOR THE YEAR UNDER REFERENCE AGAINST WHICH A MERE NET PROFIT OF RS.10, 48,625/- WAS ARRIVED, WHICH CONSTITUTES ONLY 20% OF COMMISSION R ECEIPTS, AFTER DEBITING VARIOUS EXPENSES, WHICH INCLUDED THE AMOUN T OF RS.15,22,830/- WHICH IN TURN SHOWN TO HAVE INCURRED IN THE FORM OF CAR HIRE CHARGES (RS.8 ,87,720), VEHICLE MAINTEN ANCE (RS.3,48,635/ - ) AND TRAVELLING EXPENSES (RS.1,86, 475). DURING THE COURSE OF ASSESSMENT PROCEEDINGS NO BILLS/VOUCH ERS AND DETAILS RELATED TO SUCH EXPENSES WERE SHOWN TO HAVE BEEN PRODUCED BEFORE THE AO, RESULTING IN DISALLOWANCE O F 50% OF SUCH EXPENSES. THE APPELLANT'S CONTENTION WAS THAT, HE B EING AN AGENT FOR PROPAGATING THE BUSINESS BY SALE OF PLOTS WAS LIABLE TO INCUR EXPENSES ON TRAVELLING AND FOR COMMUNICATION OF PROSPECTIVE CUSTOMERS/BUYERS OF PLOTS. HENCE, THE E XPENSES ARE JUSTIFIED. INDEED THE EXPENSES WERE CLAIMED AND ALL OWED AS BUSINESS RELATED EXPENSES. HOWEVER, KEEPING THE FA CT THAT THE APPELLANT COULD NOT PRODUCE ANY INFORMATION REGARDI NG THE EXPENSES, THE DISALLOWANCE OF A PORTION OF CLAIM IS JUSTIFIED. HOWEVER, KEEPING THE NATURE OF ACTIVITY IN MIND, TH E DISALLOWANCE TO THE EXTENT OF 50% OF THE CLAIM MAY NOT BE JUSTIF IED AND A DISALLOWANCE OF 30% OF SUCH EXPENSES MAY MEET JUSTI CE AT BOTH THE ENDS. ACCORDINGLY, THE GROUNDS RELATED TO THIS ISSUE ARE TREATED AS PARTLY ALLOWED. 8. AS REGARDS GROUND NO. 3 PERTAINING TO THE ADDITI ON ON ACCOUNT OF DISALLOWANCE OF EXPENSES UNDER THE HEAD 'ADVERTI SEMENT' OF RS. 3,03,900/-, DURING THE COURSE OF ASSESSMENT PROCEED INGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE INCURR ED EXPENDITURE OF RS.6,07,800/- TOWARDS ADVERTISEMENT WHICH IS ON THE HIGHER SIDE SINCE 4 ITA NO. 1179/H/15 CH. RAVI PRASAD THE COMPANY M/S.V.V.R.HOUSING PVT. LTD. WHICH IS A LEADING COMPANY IN REAL ESTATE BUSINESS HAS LAUNCHED MASSIVE ADVERT ISEMENT CAMPAIGN AND THERE IS NO NECESSITY ON THE PART OF T HE ASSESSEE TO INCUR SUCH HUGE EXPENDITURE TOWARDS ADVERTISEMENT. THUS, THE ASSESSING OFFICER DISALLOWED 50% OF ADVERTISEMENT E XPENDITURE OF RS.6,07,800/- I.E. RS.3,03,900/- AND ADDED THE SAME TO THE INCOME RETURNED. 9. BEFORE THE CIT(A), THE ASSESSEE OBJECTED FOR SUC H ADDITION STATING THAT THE ADVERTISEMENT UNDERTAKEN BY THE CO MPANY M/S.V.V. R. HOUSING PVT. LTD. IS AT MACRO LEVEL. THE APPELLA NT FURTHER SUBMITTED THAT THE MAIN ACTIVITY OF THE ASSESSEE IS TO LOCATE INTENDING PURCHASERS OF PLOTS AND FOR THIS PURPOSE THE ASSESS EE HAS TO GO FROM DOOR TO DOOR DISTRIBUTING PAMPHLETS, PASTING WALL P OSTERS AND OTHER HOARDINGS AT VARIOUS LOCATIONS AND THE MATERIAL REQ UIRED FOR ADVERTISING IS PURCHASED BY HIM AND IS DISTRIBUTED. THE ASSESSEE ALSO STATED THAT SINCE THERE ARE MANY AGENTS WORKIN G FOR THE COMPANY, THE ASSESSEE HAS TO TAKE INTENSE STEPS FOR LOCATING THE PURCHASERS AND CONVINCE THEM TO OWN A PLOT. 10. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, RESTRICTED THE DISALLOWANCE TO 40% AS AGAINST 50% M ADE BY THE AO BY OBSERVING AS UNDER: 6.3 PERUSED THE SUBMISSIONS OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER. AS COULD BE MADE OUT FROM THE FACTS, THE APPELLANT WAS AN AGENT TO M/S.V .V.R. HOUSING PVT. LTD. AND EARNED HUGE COMMISSION OF RS.45,62,80 1/-, DURING THE YEAR UNDER REFERENCE. FOR ARRIVING AT THE NET P ROFIT, THE ASSESSEE DEBITED CERTAIN EXPENSES TO THE P&L ACCOUN T, WHICH INCLUDED AN AMOUNT OF RS.6,07,800J- UNDER THE HEAD 'ADVERTISEMENT'. THE ASSESSING OFFICER WAS OF THE O PINION THAT M/S.V.V.R. HOUSING PVT. LTD. BEING A PRINCIPAL, WAS RESPONSIBLE FOR ADVERTISEMENT, WHICH HAS EMBARKED ON MASSIVE ADVERTISEMENT CAMPAIGN. CONSIDERING THE RELEVANCE O F THE ASSESSEE TO SPEND THE AMOUNTS TOWARDS THE ADVERTISE MENT AND KEEPING THE QUANTUM OF EXPENSES (RS.3,07,800) IN MI ND, THE ASSESSING OFFICER DISALLOWED 50% OF SUCH EXPENSES. THE APPELLANT'S ARGUMENT AGAINST THE SAID DISALLOWANCE WAS THAT THE 5 ITA NO. 1179/H/15 CH. RAVI PRASAD COMPANY IS RESPONSIBLE FOR ADVERTISEMENT AT MACRO L EVEL, WHEREAS HIS RESPONSIBILITY LIES AT MICRO LEVEL, WIT H PAMPHLETS PRINTED AND DISTRIBUTED ON DOOR TO DOOR BASIS. THOU GH THERE IS STRENGTH IN THE ARGUMENT OF THE APPELLANT, IT IS NO T ENOUGH TO CONTROVERT THE TOTAL DISALLOWANCE, DUE TO THE FACT THAT NO INFORMATION COULD BE FURNISHED BY ASSESSEE, RELATAB LE TO THE SAID EXPENSES AND THE AMOUNTS WERE MOSTLY INCURRED THROU GH CASH PAYMENTS, WHICH DO INVOLVE THE INFLATION OF EXPENSE S. CONSIDERING THE FACT THAT MAJOR RESPONSIBILITY OF A DVERTISEMENT LIES WITH THE PRINCIPAL, AS COMPARED TO THE AGENT A ND ALSO KEEPING THE MODE OF INCURRING THE EXPENSES IN MIND, THE DISALLOWANCE OF 40% OF SUCH EXPENSES IS JUSTIFIABLE , AS AGAINST 50% MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. ACCORDINGLY, THE DISALLOWANCE IS RESTRICTED TO 40% OF 6,07,800/-. THUS, THE GROUNDS RELATED TO THIS ISSUE ARE TREATED AS PARTLY ALLOWED. 11. BEFORE US, LD. AR SUBMITTED THAT CIT(A) ERRED I N SUSTAINING THE INCOME OF ASSESSEE 40% OF THE AGGREGATE EXPENDITURE BY HOLDING THAT THE ASSESSEE COULD NOT PRODUCE ANY INFORMATION REGA RDING THE EXPENSES. HE CONTENDED THAT THE CIT(A) OUGHT NOT TO HAVE SUSTAINED THE ADDITION. THE LD. AR SUBMITTED THAT THE CIT(A) ERRED IN SUSTAINING ADDITION OF 40% OF EXPENSES BY HOLDING THAT THE MAJ OR RESPONSIBILITY OF ADVERTISEMENT LIES WITH THE PRINCIPAL, AS COMPAR ED TO THE AGENT. THE CIT(A) OUGHT NOT TO HAVE SUSTAINED THE ADDITION . 12. THE LD. DR, ON THE OTHER HAND, RELIED ON THE OR DER OF THE CIT(A). 13. CONSIDERED THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL FACTS ON RECORD. THE ASSESSEE IS AN INDIVIDUAL EARNING I NCOME MAINLY FROM THE COMMISSION FROM SALE OF LAND. THE GROSS COMMISS ION AND NET INCOME DECLARED BY THE ASSESSEE ARE FLUCTUATING AS BELOW: AY GROSS RECEIPTS (RS.) TOTAL EXPENSES (RS.) NET PROFIT (RS.) % F PROFIT 2007-08 16,88,827 14,16,327 2,72,500 16.13% 2008-09 45,62,801 39,72,021 5,90,780 12.95% 2009-10 17,71,825 15,09,610 2,62,215 14.80% 6 ITA NO. 1179/H/15 CH. RAVI PRASAD FROM THE ABOVE, IT IS CLEAR THAT ONLY IN AY 2008-09 , HE HAD EARNED ADDITIONAL REVENUE COMPARED TO OTHER YEARS AND AS W ELL AS THE NET PROFIT DECLARED BY THE ASSESSEE AND THE SAME WAS A CCEPTED BY THE DEPARTMENT IN THE PRECEDING AND FOLLOWING YEARS ARE BETWEEN 15% TO 17%. MOREOVER, THE ASSESSEE HAD TO SPEND CERTAIN EX PENDITURE TO EARN THIS INCOME. THE ASSESSING OFFICER CANNOT WEAR SHOES OF THE ASSESSEE AND DETERMINE, HOW MUCH HE HAS TO SPEND. T HE ASSESSEE HAD EARNED THE INCOME AND WE ARE NOT AWARE OF THE D IFFICULTIES IN EARNING THE INCOME IN THIS LINE OF BUSINESS. THE PR OSPECTIVE BUYERS NEED TO BE CONVINCED AND TAKEN TO THE RESPECTIVE SI TES TO CONVINCE THEM. ASSESSING OFFICER HAS NOT BROUGHT ANYTHING ON RECORD TO CONTROVERT THAT THESE EXPENSES HAVE NOT MET BY THE BUYERS OR SELLERS. IN ABSENCE OF SUCH EVIDENCE, WE HAVE TO GO WITH ASS ESSEES CLAIM. THE ASSESSEE HAS NOT MAINTAINED PROPER VOUCHERS BUT SPENT IT IN CASH. THE ASSESSING OFFICER HAS REJECTED THE SUBMIS SIONS OF THE ASSESSEE AND DISALLOWED 50% OF ADVERTISEMENT AND 50 % ON OTHER EXPENDITURES. IN OUR CONSIDERED VIEW, ASSESSING OFF ICER SHOULD HAVE ESTIMATED THE INCOME. THE ASSESSEE WAS ADMITTING TH E NET INCOME IN THE EARLIER YEAR AT 16.13% AGAINST THE GROSS RECEIP TS OF RS. 16.88 LAKHS AND IN SUBSEQUENT YEAR, IT HAS ADMITTED 14.80 % ON GROSS REVENUE OF RS. 17.71 LAKHS. IN THE INTEREST OF JUST ICE, WE DIRECT THE ASSESSING OFFICER TO DETERMINE THE NET INCOME OF TH E ASSESSEE AT 20% OF THE GROSS RECEIPTS. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE, 2016. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAHM AN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 17 TH JUNE, 2016 KV 7 ITA NO. 1179/H/15 CH. RAVI PRASAD COPY TO:- 1) CH. RAVI PRASAD, C/O SRI S. RAMA RAO, ADVOCATE, FLAT NO. 102, SHRIYAS ELEGANCE, H. NO. 3-6-643 , ST. NO. 9, HIMAYAT NAGAR, , HYDERABAD 500 029 2) ITO, WARD 11(3), 5 TH FLOOR, IT TOWERS, MASAB TANK, HYD. 3) CIT(A) - 5 HYDERABAD 4) CIT - 5, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.