M/s. AWASTHI TRADERS, Auraiya V. DCIT CIRCLE-1, Agra

ITA 119/AGR/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9568 (ITAT-AGRA)
• Duration Of Justice: 4 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 15-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: GAURAV GOYAL
• Keywords: Business income; Depreciation; Additional evidence
• Section: 44AD; 208; 64; 44AB; 73; 22; 32

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI LALIET KUMAR, JUDICIAL MEMBER AND DR. MITHA LAL MEENA, ACCOUNTANT MEMBER ITA NO. 119/AGR/2016 ASSESSMENT YEAR: 2012-13 AWASTHI TRADERS, PHAPHUND ROAD, DIBIYAPUR, DISTT. AURAIYA (U.P) PAN- AAIFA6499D. (APPELLANT) VS. DCIT, CIRCLE - 1, AGRA. (RESPONDENT) ITA NO. 441/AGR/2018 ASSESSMENT YEAR: 2014-15 AWASTHI TRADERS, PHAPHUND ROAD, DIBIYAPUR, DISTT. AURAIYA (U.P) PAN- AAIFA6499D. (APPELLANT) VS. ACIT, CIRCLE - 1, AGRA. (RESPONDENT) APPELLANT BY SH. GAURAV GOYAL, CA RESPONDENT BY SH. WASEEM ARSHAD, SR. DR DATE OF HEARING 06.07.2020 DATE OF PRONOUNCEMENT 08 . 07 . 2020 ORDER PER BENCH .: THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE ORDERS DATED 30.12.2015 AND 29.03.2018 PASSED BY LD. CIT(A)-I, AGRA FOR THE ASSESSMENT YEARS 2012-13 AND 2014-15 RESPECTIVELY. THE ASSESSE E HAS RAISED FOLLOWING GROUNDS IN THE RESPECTIVE APPEALS : ASSESSMENT YEAR 2012-13: 1. THAT INTEREST INCOME ON FDRS PLEDGED FOR SE CURITY PURPOSES IN OBTAINING THE CONTRACT BUSINESS COMES WITHIN THE AM BIT OF BUSINESS INCOME. 2. THAT THE LD. CIT(A) WRONGLY HELD INTEREST INCOM E ON SECURITIES AS INCOME FROM OTHER SOURCES. 3. THAT ON 26.08.2015, WHATEVER QUERIES WERE GIVE N TO THE APPELLANT FOR 07.09.2015, THEY WERE PROPERLY RESPONDED BY SPEED P OST ON 04.09.2015 AND THEY ARE ALL ON RECORD. 4. THAT THE APPELLANT CITED THE JUDGMENT OF HONB LE KARNATAKA HIGH COURT IN COMMISSIONER OF INCOME TAX AND ANOTHER V/S CHINNA NACHIMUTHV CONSTRUCTIONS [2008] 297 ITR 70 (KAR) WHE REIN THE COURT RELYING ON AN APEX COURT DECISION IN THE CASE OF CI T V/S GOVINDA CHOUDHURY AND SONS REPORTED IN [1993] 203 ITR 881 AN D ALSO THE CASE OF MAHESH CHANDRA CONTRACTOR, ETAWAH V/S INCOME TAX OFF ICER, ETAWAH ITA NO. 382/AGRA/2012 OF HONBLE ITAT AGRA BENCH AGRA IN BOTH THE CASES INTEREST ADDED AS INCOME FROM OTHER SOURCES WAS DEL ETED. 5. THAT ONE OF THE CASES CITED BY LEANED CIT(A) ON INTEREST DO NOT APLY TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. THAT THE AUTHORITIES BELOW ERRED IN NOT ALLOWI NG DEPRECIATION WHICH WAS PROPERTY CLAIMED AND FULL DETAILS WERE FURNISHE D BEFORE THE LEARNED A.O. 7. THAT THE DEPRECIATION IS ALLOWABLE EVEN IF N. P. RATE IS APPLIED. 8. THAT THE ALLOWANCE OF DEPRECIATION IS MANDATOR Y AS PER PROVISIONS OF SECTION 32 EXPLANATION 5 OF THE INCOME TAX ACT, 1961 . 9. THAT A NUMBER OF DECISIONS WERE CITED BEFORE T HE LEARNED CIT(A) WHERE DEPRECIATION WAS ALLOWED BOTH BY HONBLE HIGH COURTS AND BY HONBLE TRIBUNALS. 10. THAT THE CASE CITED BY THE LEARNED CIT(A) IS N OT APPLICABLE IN THE FACTS & CIRCUMSTANCES OF THE CASE ON DEPRECIATION. 11. THAT THE PROVISIONS O SEC. 44AD D NOT APPLY I N THE FCTS AND CIRCUMSTANCES OF THE CASE AS THE ACCOUNTS WERE MAIN TAINED AND AUDITED AS PER PROVISIONS OF SECTION 44AB OF THE INCOME-TAX AC T, 1961. 12. THAT THE APPEAL IS LIABLE TO BE ALLOWED. ASSESSMENT YEAR 2014-15: 1. THAT THE APPELLANT IS A CIVIL CONTRACTOR AND DISC LOSED N.P. RATE AT 3.44% AND THE LEARNED A.O. APPLIED N.P. RATE AT 8% WHICH IS EXCESSIVE. 2. THAT THE APPLICATION OF 8% N.P. RATE IS APPLIED B Y LEARNED AO ON THE BASIS OF WRITTEN SUBMISSIONS OF THE APPELLANT ON 11 /11/2016 THE OFFER OF NET PROFIT WAS CONDITIONAL THE OFFER WAS NOT ACCEPT ED BY LEARNED AO IN TOTO. HENCE THE OFFER BECAME REDUNDANT. 3. THAT IN THE CASE OF THE APPELLANT IN ASST YEAR 20 11-12 6.5% N.P. RATE WAS APPLIED AND IN SUBSEQUENT AS YEAR IN 2015-16 7% N.P. RATE WAS APPLIED BY THE LEANED A.O. 4. THAT THE APPELLANT VIDE WRITTEN SUBMISSIONS DATED 07/11/2016 EXPLAINED BEFORE THE LEARNED AO THAT INTEREST ON FD RS AMOUNTING TO RS. 31,95,171/- WAS RECEIVED BY PLACING THE FDRS AS SEC URITY AMOUNT FOR PURPOSES OF OBTAINING CONTRACTS & TENDERS. THIS WAS EXAMINED BY THE LEARNED AO AND NOTHING ADVERSE WAS FOUND. HENCE INC OME FROM INTEREST IS BUSINESS INCOME AND CANNOT BE TAKEN AS INCOME FROM OTHER SOURCES. 2. THE FIRST ISSUE INVOLVED IN BOTH THE APPEALS I.E GROUND NO 1TO 5 IN APPEAL NO 119/16 AND GROUND NO 4 IN APPEAL NO 441 / 18 IS WITH REGARD TO TREATMENT OF INTEREST INCOME ON FDRS IN THE ATTENDING FACTS A ND CIRCUMSTANCES OF THE CASES WHETHER BUSINESS INCOME OR INCOME FROM OTHE R SOURCES. 3. THE LD. AR OF THE ASSESSEE HAD FILED AN APPLI CATION FOR ACCEPTANCE OF ADDITIONAL EVIDENCE IN BOTH THE APPEALS . HE HAS FI LED CERTIFICATE FROM BANKS, DETAILS OF FDRS, COPY OF FDRS AND COPIES OF BANK GU ARANTEE. IT WAS SUBMITTED THAT THESE DOCUMENTS WERE NOT FILED BEFORE THE LOWE R AUTHORITIES FOR THE REASONS MENTIONED IN THE APPLICATION AND FURTHER TH ESE DOCUMENTS ARE FILED IN PURSUANCE TO THE DIRECTIONS OF THE BENCH. 4. ON THE OTHER HAND, LD. DR HAS OBJECTED TO FIL ING OF THESE DOCUMENTS, MORE PARTICULARLY, THE COPIES OF BANK GUARANTEES AND SUB MITTED THAT THESE ARE IN THE NATURE OF PERFORMANCE BANK GUARANTEE ISSUED BY THE BANK, FOR WHICH THE EXPENSES HAVE ALREADY BEEN DEBITED TO THE PROFIT & LOSS ACCOUNT BY THE ASSESSEE. THE CONTENTION OF THE AR FOR ASSESSEE IN REBUTTAL , WAS THAT , PERFORMANCE GUARANTEE WERE ISSUED BY THE BANKS ON T HE BASIS OF FDRS DEPOSITED BY THE ASSESSEE AND THEREFORE, THE INTERE ST INCOME RECEIVED BY THE ASSESSEE ON SUCH FDRS WERE INTRINSICALLY CONNECTE D WITH THE BUSINESS OF THE ASSESSEE, AS DEPOSIT OF FDRS/ OTHER SECURITIES WER E PREREQUISITE CONDITION OF THE BANK FOR ISSUANCE OF PERFORMANCE GUARANTEES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE MATERIAL ON RECORD. UNDISPUTEDLY, THE ASSESSEE HAD NOT PRODUCED THESE DOCUMENTS BEFORE THE LOWER AUTHORITIES, AS IS CLEAR FROM PARA 5.3.1 OF THE IMPUGNED ORDER WHERE THE LD. CIT(A) HAD MENTIONED THAT THE ASSESSEE HAD NOT ATTENDED THE HEARING NOR FILED ANY APPLICATION FOR ADJOURNMENT. FURTHER , THE LD. CIT(A) HAD ALSO OBSERVED THAT THIS INTEREST INCOME CANNOT BE CONSID ERED AS BUSINESS INCOME AS THE ASSESSEE IS NOT ABLE TO PROVE THAT FDRS WERE INTRINSICALLY RELATED TO THE BUSINESS OF THE ASSESSEE AND WAS REQUIRED TO BE CON SIDERED AS INCOME FROM OTHER SOURCES, SINCE NOW DOCUMENTS HAVE BEEN FILED IN THE FORM OF FDRS, PERFORMANCE BANK GUARANTEES ETC , WE ARE OF THE OPI NION THAT THESE DOCUMENTS ARE REQUIRED TO BE ADMITTED AS ADDITIONAL EVIDENCE IN SUPPORT OF CLAIM OF THE ASSESSEE THAT THE INTEREST INCOME EARNED ON THE FDR S IS INTRINSICALLY RELATED TO THE BUSINESS OF THE ASSESSEE AND IT WAS NECESSARY F OR ISSUANCE OF PERFORMANCE GUARANTEES BY THE BANKS TO THE THIRD PARTIES. THE P URPOSE OF TAX ADJUDICATION IS TO TAX CORRECT TAXABLE INCOME AND IS NOT ADVERSI AL LITIGATION. MOREOVER THESE DOCUMENTS WERE ISSUED BY THE NATIONALIZED BANK IN T HE LIGHT OF ABOVE, THESE DOCUMENTS ARE ADMITTED. 6. GROUND NO. 1 TO 5 OF APPEAL NO. 119/AGRA/2016 AND GROUND NO 4 IN APPEAL NO 441 / 18 PERTAIN TO INTEREST INCOME. THE ASSESSEE SUBMITTED THAT THE TRIBUNAL IN THE CASE OF ASSESSEE ITSELF IN THE PREVIOUS YEAR HAD ALLOWED THE INTEREST INCOME AS BUSINESS INCOME AND HAS NOT SEPA RATELY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. THE LD. DR HAD SU BMITTED THAT WHETHER THE INCOME EARNED BY ASSESSEE ON FDRS WAS RELATED TO TH E BUSINESS OF THE ASSESSEE OR NOT AND OTHER FACTS ARE REQUIRED TO BE EXAMINED BY THE AUTHORITIES BELOW OR BY THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF THE AS SESSEE AND PERUSED THE RECORDS. UNDISPUTEDLY, THE DOCUMENTS NOW ADMITTED A RE REQUIRED TO BE EXAMINED BY THE TRIBUNAL OR BY THE LOWER AUTHORITIE S. SINCE THE DOCUMENTS ARE RUNNING INTO MORE THAN 64 PAGES AND WE HAVE HEA RD THE MATTER ON VIRTUAL PLATFORM, THEREFORE, THE DETAILED EXAMINATION OF TH E DOCUMENTS AT THE STAGE OF TRIBUNAL IS NOT POSSIBLE. HENCE, CONSIDERING THE LI MITATIONS, WE DEEM IT APPROPRIATE TO REMAND THE MATTERS TO THE FILE OF CI T(A), PERTAINING TO THE ISSUE INVOLVED IN GROUND NO. 1 TO 5 OF APPEAL NO.119/AGR/ 2016 AND GROUND NO. 4 OF APPEAL NO.441/AGR/2018 , WITH THE DIRECTION TO EXAM INE THESE DOCUMENTS (1 TO 64) FILED ON 11.07.2019 BEFORE THE TRIBUNAL IN B OTH THE APPEALS , IN ACCORDANCE WITH LAW AND TO FIND OUT WHETHER THE IN TEREST EARNED BY THE ASSESSEE ON FDRS WAS INTRINSICALLY RELATED TO THE B USINESS OF THE ASSESSEE OR NOT. IF IT IS FOUND ON EXAMINATION THAT THE INTERES T INCOME IS RELATED TO THE BUSINESS OF THE ASSESSEE, THE SAME MAY BE CONSIDERE D AS BUSINESS INCOME AND ACCORDINGLY THE INCOME OF THE ASSESSEE IS COMPUTED BY APPLYING THE NP RATE. FOR THE ABOVE PURPOSE, THE LD. CIT(A) IS DUTY BOUND TO GRANT PERSONAL HEARING AND OPPORTUNITY TO THE ASSESSEE AS WELL AS ASSESSIN G OFFICER, FROM WHOM CIT(A) MAY ALSO SEEK REMAND REPORT FROM ASSESSING O FFICER, IF REQUIRED. THE LD. CIT(A) SHALL ALSO CONSIDER VARIOUS DECISIONS RE LIED UPON BY THE ASSESSEE INCLUDING THE DECISION OF TRIBUNAL IN THE ASSESSEE S CASE FOR EARLIER YEARS. 8. GROUND NO. 6 TO 12 OF APPEAL NO.119/AGR/2016 PERTAIN TO ALLOWANCE OF DEPRECIATION. THE LD. AR HAS DRAWN OUR ATTENTION TO THE ORDER OF HONBLE SUPREME COURT IN THE CASE OF ASSESSEE, WHEREIN IDEN TICAL ISSUE WAS DECIDED BY HONBLE SUPREME COURT IN FAVOUR OF THE ASSESSEE. FU RTHER, OUR ATTENTION WAS ALSO DRAWN TO PARA 8.2 OF THE ORDER OF CIT(A) FOR A SSESSMENT YEAR 2014-15 IN APPEAL NO 441/18 TO THE FOLLOWING EFFECT : 8.2. AS REGARDS THE ISSUE OF ALLOWANCE OF DEPRE CIATION, I FIND THAT THIS ISSUE IN THE PRESENT PROCEEDINGS IS FULLY COVERED B Y THE DECISION OF HONBLE SUPREME COURT IN THE APPELLANTS OWN CASE FOR A.Y. 2009-10, WHICH HS BEEN CITED BY THE APPELLANT IN ITS SUBMISSION IN THE PRE SENT PROCEEDINGS AND REPORTED AS AWASTHI TRADERS V. COMMISSIONER OF INCOM E TAX-I AGRA (2016) 73 TAXMANN.COM 208 (SC). IN DUE COMPLIANCE TO THE S AME AND UNDER THE FACTS AND CIRCUMSTANCES OF THE PRESENT PROCEEDINGS, THE APPELLANTS CLAIM OF DEPRECIATION IS ALLOWED. 9. IT WAS SUBMITTED THAT THE ASSESSING OFFICER W HILE COMPUTING INCOME OF THE ASSESSEE HAS NOT GIVEN BENEFIT OF DEPRECIATION, AS IT WAS THE OPINION OF THE ASSESSING OFFICER THAT THE DEPRECIATION WAS SUBSUME D IN THE ESTIMATED INCOME AT 8%. 10. ON THE OTHER HAND, LD. DR HAD SUBMITTED THAT THE ASSESSEE HAD ALREADY BEEN GIVEN BENEFIT OF DEPRECIATION AND IT WAS SUBMI TTED THAT THE AMOUNT OF RS. 65,28,670/- WAS ALREADY TAKEN INTO ACCOUNT FOR DEPR ECIATION. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE THROUGH THE RECORD. UNDISPUTEDLY, THE ISSUE HAS BEEN SETTLED BY HONBLE SUPREME COURT IN THE CASE OF ASSESSEE, AS HAS BEEN RIGHTLY RECORDED BY THE LD . CIT(A) IN THE ORDER FOR ASSESSMENT YEAR 2014-15. IN ORDER TO GIVE CLARITY, WE DIRECT THE ASSESSING OFFICER TO COMPUTE THE TAXABLE INCOME OF THE ASSESS EE AFTER GIVING BENEFIT OF INTEREST TO PARTNERS ,REMUNERATION TO THE PARTNERS AND DEPRECIATION. THE TAXABLE INCOME OF THE ASSESSEE WOULD BE SUBJECT TO OUTCOME ON THE ISSUE OF INTEREST ON FDRS. IN THE LIGHT OF ABOVE GROUNDS NOS . 6 TO 11 OF APPEAL FOR ASSESSMENT YEAR 2012-13 ARE ALLOWED. ASSESSMENT YEAR -- - - - > 2013 - 14 2015 - 16 2016-17 - AMOUNT % OF TURNOVER AMOUNT % OF TURNOVER AMOUNT % OF TURNOVER TOTAL TURNOVER DURING THE YEAR 226,887,652.31 100.00% 237,807,502.00 100.00% 242,006,809.00 100.00% NET PROFIT DECLARED BY APPELLANT IN 1TR 7,998,715.00 3.53% 7,780,410.00 3.27% 6,704,710.00 2.77% PROFIT RATE APPLIED BY AO 18,355,992.00 8.00% 16,646,525.00 7.00% 16,940,477.00 7.00% FDR INTEREST ADDED TO TURNOVER 2,562,246.00 PARTNERS SALARY/REMUNERATION ALLOWED 1,530,155.00 2,056,843.00 2,342,363.00 DEPRECIATION ALLOWED - 5,072,328.00 4,542,139.00 FDR INTEREST ADDED AS OTHER SOURCES - - - NET INCOME ASSESSED BY AO 16,825,837.00 9,517,354.00 10,055,975.00 LD CIT APPEAL EFFECTS NA NA DEPRECIATION ALLOWED . FDR INTEREST 5,409,486.00 - - . - - - NET INCOME AFTER LD. CIT (A) ORDER 11,416,351.00 NA NA 12. GROUND NO. 1 TO 3 OF APPEAL NO. 441/AGR/2018 PERTAIN TO TAKING OF NET PROFIT RATE OF 8% BY THE ASSESSING OFFICER AND CIT( A) FOR A.Y. 2014-15. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE THAT THE NET PR OFIT RATE OF 8% IS TOO HIGH CONSIDERING THE TURNOVER OF THE ASSESSEE. THE TURNO VER OF THE ASSESSEE FOR THE AY 2014-15 WAS RS.19,27,47,827/-AND AR RELIED TO T HE FOLLOWING CHART IT WAS POINTED OUT THAT FOR SUBSEQUENT ASSESSMENT Y EARS, THE LOWER AUTHORITIES HAD ALREADY APPLIED NET PROFIT RATE OF 7% MOREOVER THE ABOVE SAID ASPECT HAS NOT BEEN CONTESTED BY THE REVENUE BY FILING THE APP EAL FOR THE SUBSEQUENT YEAR. IT WAS SUBMITTED THAT PARITY IS REQUIRED TO B E MAINTAINED AND THEREFORE, THE NET PROFIT RATE OF 7% MAY BE TAKEN INSTEAD OF 8 %. 13. IN REBUTTAL, IT WAS SUBMITTED BY THE LD. DR THAT IN THE ASSESSMENT YEAR 2012-13, THE ASSESSEE HAS ACCEPTED THE NP RATE OF 8 % AND THE SAME HAS NOT BEEN CHALLENGED BY THE ASSESSEE. FURTHER, FOR THE L AST MORE THAN A DECADE, THE ASSESSEE HAS NOT MAINTAINED BOOKS OF ACCOUNTS NOR C HALLENGED THE REJECTION OF BOOKS OF ACCOUNT BY THE AUTHORITIES BELOW BEFORE TH E TRIBUNAL. IT WAS SUBMITTED THAT THE ASSESSEE SHOULD NOT BE GIVEN PRE MIUM FOR NOT MAINTAINING THE BOOKS OF ACCOUNTS AND THUS, THERE SHOULD NOT BE ANY DISTURBANCE OF NP RATE OF 8%. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE GONE THROUGH THE RECORD. THE ASSESSEE ITSELF HAS ADMITTED NET PROFIT RATE OF 8% AS REASONABLE IN THE PRECEDING ASSESSMENT YEAR IN THE IDENTICAL FACTS AN D CIRCUMSTANCES. FURTHER ASSESSEE CANNOT BE GIVEN BENEFIT OF SUBSEQUENT ASSE SSMENT YEAR AS THOSE ESTIMATION WAS DONE AFTER REJECTION OF BOOKS OF ACC OUNT. ADMITTEDLY, THE ASSESSMENT CAN BE MADE BY THE ASSESSING OFFICER, BA SED ON PREVIOUS YEARS NP OF THE ASSESSEE OR ON THE BASIS OF COMPARABLE INSTA NCE INVOLVED IN THE SAME BUSINESS IN THE PREVIOUS AND SUBSEQUENT ASSESSMENT YEARS. IN THE PRESENT CASE, THE ASSESSEE RELIED UPON HIS OWN CASES FOR TH E SUBSEQUENT YEARS .THOUGH FOUND THAT THE ASSESSEE HAS NOT CHALLENGED THE NP R ATE OF 8% APPLIED FOR ASSESSMENT YEAR 2012-13 AND 2013-14 IN WHICH THE TURNOVER OF THE ASSESSEE WAS 17.17 CRORES AND 22 CRORE RESPECTIVELY, WHEREAS THE TURNOVER IN THE PRESENT YEAR WAS 19.27 CRORES. HOWEVER CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCE OF THE CASE WE RESTRICT THE NET PROFIT RATE TO 7.75% INSTEAD OF 8% AS HELD BY THE LOWER AUTHORITIES. IN THE RESULT TH E RELEVANT GROUND OF APPEAL OF ASSESSEE IS, ACCORDINGLY, PARTLY ALLOWED. 15. IN THE RESULT, BOTH THE APPEALS OF THE ASSES SEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 08/07/2020. SD/- SD/- (DR. MITHA LAL MEENA) (LA LIET KUMAR) ACCOUNTANTMEMBER JUDICIALMEMBER *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RES PONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GU ARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AGRA BENCH, AGRA