M/s.Anuj Kumar Agrawal, Batul V. Income Tax Officer , Batul

ITA 126/JAB/2018

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 7990 (ITAT-JABALPUR)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 24-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DIRECTED AGAIN ST
• Keywords: Business income; Depreciation; Set aside
• Section: 143(3); 145; 263

Judgement Text

I.T.A. NO. 126 /JAB/201 8 ASSESSMENT YEAR:20 1 0 - 1 1 1 IN THE INCOME TAX APPELLATE TRIBUNAL JABALPUR BENCH, JABALPUR BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO. 126 /JAB/201 8 ASSESSMENT YEAR:20 1 0 - 1 1 M/S . ANUJ KUMAR AGARWAL, COLLEGE ROAD, BETULGANJ, BETUL (MP) 460001 PAN : AAOFA3419K V S. I NCOME T AX O FFICER , AAYKARBHAWAN, CIVIL LINES, BETUL (M.P.) (APPELLANT) (RESPONDENT) O R D E R P ER SANJAY ARORA, A M THIS IS AN A PPEAL BY THE A SSESSEE , DIRECTED AGAINST THE O RDER BY THE L D. COMMISSIONER OF INCOME TAX ( APPEALS ) - 1, BHOPAL ( CIT (A ) FOR SHORT) DATED 21 .0 3 .2018 , PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U NDER SECTION 143 READ WITH S. 263 OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) DATED 15/7/2015 FOR ASSESSMENT YEAR (A.Y.) 20 1 0 - 1 1 . 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - FIRM , A CIVIL CONTRACTOR, FILED I T S RETURN OF INCOME FOR THE RELEVANT YEAR ON 15.10.2010, DISCLOSING AN INCOME OF RS.8,76,920/ - . THE ASSESSEE NOT PRODUCING I T S BOOKS OF ACCOUNT , WHICH FORMED THE BASIS OF ITS RETURN, IN THE ASSESSMENT PROCEEDINGS BEFORE HIM , T HE ASSESSING OFFICER (AO) INVOK EDS ECTION 145 (3) OF THE ACT, AND NOTING THE ASSESSEE TO BE A HABITUAL DEFAULTER AND NOT CO OPERAT IVE IN THE ASSESSMENT PROCEEDING S , ESTIMAT ED THE NET PROFIT OF I T S CONTRACT BUSINESS AT 5% OF THE TURNOVER OF RS. 3 6 5. 4 4 LACS, I.E. , AT APPELLANT BY SHRI HEMANT S. MODH, ADVOCATE RESPONDENT BY SHRI I.B. KHANDEL , SR. DR DATE OF HEARING 10 /12/2019 DATE OF PRONOUNCEMENT 24 /12/2019 I.T.A. NO. 126 /JAB/201 8 ASSESSMENT YEAR:20 1 0 - 1 1 2 RS.18,27,177 , AND AL LOWING DEDUCTION TOWARD INTEREST AND SALARY TO THE PARTNERS THEREAFTER, AT RS.2,49,557/ - AND RS.1,30,000/ - RESPECTIVELY, I.E. , AS CLAIM ED THROUGH THE PROFIT AND LOSS ACCOUNT (PB PGS. 12,25) , ASSESSED ITS INCOME FOR THE YEAR AT RS. 1,4,47,620 VIDE O RDER U/S . 143(3) DATED 25.3.2013 (COPY ON RECORD). THE SAME WAS SUBJECT TO REVISION BY THE COMMISSIONER OF INCOME TAX 1, BHOPAL (CIT FOR SHORT) VIDE ORDER U/S . 263 DATED 31.3.2015 (COPY ON RECORD). THE AO, IT WAS OBSERVED THEREIN, HAD : (A) NOT BROUGHT TO TAX O THER INCOME OF RS.1,77,273/ - , BEING JEEP RENT (RS.59,299) AND BANK INTEREST (RS.1,17,974/ - ); (B) ALLOWED THE ASSESSEE INTEREST AND REMUNERATION TO PARTNERS AT RS.3,79,557/ - , AS DEBITED TO THE PROFIT AND LOSS ACCOUNT , EVEN AS NET PROFIT OF THE BUSINES S HAD BEEN ESTIMATED BY HIM , I M PLYING DEDUCTION OF ALL EXPEN SES , SO THAT THERE WAS NO SCOPE FOR SEPARATE DEDUCTION QUA ANY EXPENDITURE ; (C) NOT BRINGING THE PROFIT ON RECEIPT OF RS.2,50,000, I.E. , AT THE RATE OF 5% OR RS.12,500/ - , TO TAX, I.E., AS PART OF THE CONTRACT INCOME, RESULTING IN AN UNDER - ASSESSMENT BY RS.5,69,330/ - . HE, ACCORDINGLY, DIRECTED A DE NOVO ASSESSMENT AFTER CONSIDERING THE SAID ISSUES, IN ACCORDANCE WITH LAW, AND AFTER AFFORDING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. IN THE SET ASIDE PROCEEDING S , THE AO : (A) ESTIMATED THE CONTRACT BUSINESS INCOME AT 8% OF THE TURNOVER , ADOPTING A FIGURE BY INC R EASING THE BOOK SALES BY RS.2.50 LACS , I.E. , AT RS.367.94 LACS, AS FOUND BY HIM AFTER VERIFICATION; (B) BROUGHT TO TAX THE OTHER INCOME OF RS.1,77,273/ - ; AND (C) DID NOT ALLOW ANY DEDUCTION FOR INTEREST AND REMUNERATION TO THE PARTNERS, ASSESSING, THUS, THE ASSESSEE S TOTAL INCOME FOR THE YEAR AT RS.31,20,757/ - . 2 . 2 IN APPEAL, THE LD. CIT(A) WAS OF THE VIEW THAT THE LD. CIT HAD GIVEN A SPECIFIC DIRECTION TO THE AO, WHO THEREFORE COULD NOT HAVE TRAVELLED OUTSIDE THE MANDATE OF THE S ECTION 263 ORDER, WHICH HAD BECOME FINAL ON ACCOUNT OF IT HAVING NOT BEEN APPEALED AGAINST BY THE ASSESSEE BEFORE THE TRIBUNAL. THE AO, HOWEVER, HAD GONE WRONG IN INCREASING THE NET PROFIT RATE T O 8%, QUA WHICH THERE WAS NO DIRECTION. IN ANY CASE, THE SAME WAS SANS ANY BASIS OR MATERIAL ON I.T.A. NO. 126 /JAB/201 8 ASSESSMENT YEAR:20 1 0 - 1 1 3 RECORD. HE, ACCORDINGLY, DIRECTED THE AO TO RESTRICT THE ADDITION TO RS.5,69,330 , I.E., AS STATED BY THE LD. CIT. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL . 3 . 1 T HE LD. COUNSEL FOR THE ASSESSEE, SHRIHEMANTMODH, WOULD SUBMIT THAT THE ASSESSEES INCOME COULD NOT HAVE BEEN ENHANCED IN ASSESSMENT WITHOUT BEING SHOW CAUSED IN ITS RESPECT BY THE AO. THE INTEREST AND REMUNERATION TO THE PARTNERS IS ONLY A DISTRIBUTION OF PROFIT , SO THAT THE SAME OUGHT TO HAVE BEEN ALLOWED AFTER ESTIMATING THE CONTRACT BUSINESS INCOME, TOWARD WHICH HE WOULD ADVERT TO THE ASSESSEE S PAST HISTORY (PB P AGE 7), AS UNDER, WHICH HAD NOT BEEN CONSIDERED : ( AMOUNT IN RS. LACS ) A.Y. GR NP NP(%) 200 8 - 09 181.69 2.71 1.49 2009 - 10 221.14 2.94 1.33 2010 - 11 365.44 8.77 2.40 GR => GROSS RECEIPT OF THE CONTRACT BUSINESS NP => NET PROFIT OF THE CONTRACT BUSINESS NO ADJUSTMENT WAS ACCORDINGLY CALLED FOR. FURTHER, THE RECEIPT OF RS.2,50,000/ - I S A REFUND OF A SECURITY DEPOSIT FROM M.P. LAGHUUDYOG NIGAM (PB P GS . 8 , 14). A PERUSAL OF THE STATEMENT OF THE ASSESS E E IN ITS RECORDS WOULD S H O W THAT NO TAX WAS DEDUCTED AT SOURCE O N RS.2.50 LACS, PAID BY WAY OF S.A. RECOVERY IN TWO SUMS OF RS.1.25 LAC EAC H , I.E., QUA TWO SEPARATE BILLS . THE SAME, THEREFORE, D ID NOT REPRESENT A TRADING RECEIPT. NO ADJUSTMENT IN ITS RE S P EC T IS CALLED FOR. [ 3 . 2 THE LD. SENIOR DEPARTMENT REPRESENTATIVE (SR. DR) , ON THE OTHER HAND, ADVERT ING TO P ARA 1 0 OF THE IMPUGNED ORDER, SUBMIT THAT THE DIRECTION S ISSUED BY THE LD. CIT U/S . 263 HA D ASSUMED FINALITY IN VIEW NON - CHALLENGE THERETO , SO THAT THE ASSESSEES INCOME HAD TO BE INCREASED BY RS.5,69,330/ - , TO WHICH AMOUNT THE ADDITION HAVING BEEN ALREADY RESTR ICTED IN FIRST APPEAL, NO FURTHER RELIEF IS CALLED FOR. I.T.A. NO. 126 /JAB/201 8 ASSESSMENT YEAR:20 1 0 - 1 1 4 4 . WE HAVE HEARD THE PARTIES ,AND PERUSED THE MATERIAL ON RECORD. 4 .1 THE FIRST THING THAT THEREFORE NEEDS TO BE CLARIFIED IS QUA THE SCOP E OF THE ASSESSMENT IN THE SET ASIDE P ROCEEDING S . THIS IS IN VIEW OF THE REVENUES CLAIM O F THE SAME HAVING BEEN DETERMINED PER THE S ECTION 263 ORDER , I.E., TO ENHANCING THE INCOME AS ORIGINALLY ASSESSED BY RS.5,69,330 , EVEN AS HELD BY THE LD. CIT(A) . WE , HOWEVER, DO NOT THINK SO ; THE REVISION CLEARLY REQUIRING A FRESH CONSIDERATION O F THE STATED ISSUES AS PER LAW AFTER HEARING THE ASSESSEE. THE USE OF THE WORDS DO NOVO BY THE LD. CIT MAY NOT BE VERY APT , BUT WITHOUT DOUBT THERE IS NO FOR E CLOSURE , AS BE ING SUGGESTED BY THE REVENUE. LIKE - WISE, THE ASSESSEE HAVING NOT APPEALED EITHER AGAINST ITS ORIGINAL ASSESSMENT OR INDEED THE S. 263 ORDER, THERE IS NO SCOPE FOR IT TO ARGUE AS TO THE WRONG INVOCATION OF S. 145(3) IN THE INSTANT PROCEEDINGS. WE SHALL ACCORDINGLY TAKE UP EACH OF THREE ISSUES RAISED BY THE LD. CIT PER HIS ORDER , AND WHICH THE AO WAS REQUIRED TO RECONSIDER IN ASSESSMENT (REFER PARA S 2 . 1 , 2.2 ). 4 .2 THE F IRST IS THE QUANTUM OF THE TURNOVER WHICH STANDS INCREASED BY RS.2.50 LACS. WE FIND NO BASIS THEREFOR . A S CLARIFIED BY THE ASSESSEE WITH REFERENCE TO THE RECORD OF I T S BILL - WISE DETAILS IN THE BOOKS OF THE PAYER, THE SAME IS A REIMBURSEMENT BY THE CUSTOMER - PAYER ; THE WORDS S.A. DENOTING SECURITY ADVANCE, WHICH IS BOTH ACCEPTED AND REPAID, RECORDING IT UNDER COLUMNS S.A. PAID AND S.A. RECOVERY , I.E., ON BEING PAID AND RELEASED RESPECTIVELY , IN THE BILL - WISE STATEMENT (PB PG. 14) . T W O AMOUNTS OF RS. 1.25 LAC EACH ARE REFLECTED AS S.A. RECOVERY IN THE SAID STATEMENT, AND TAX DEDUCTED AT SOURCE ONLY ON THE BALANCE AMOUNT /S . FURTH ER, T HE BILL AMOUNT /S HAVING BEEN SINCE PAID, DULY RECORDED IN THE ASSESSEES ACCOUNTS, NO T ACCOUNTING A PART THEREOF BY THE ASSESSEE, AS INFERRED BY THE REVENUE, WOULD LEAD TO A DIFFERENCE IN ITS ACCOUNTS (WITH THAT OF THE PAYER) TO THAT EXTENT, I.E., RS . 2.50 LACS, WHILE NONE HAS BEEN NOTICED OR FOUND . THE SAID AMOUNT IS THUS NOT A TRADING RECEIPT, BUT THE RECEIPT BACK OF THE SECURITY ADVANCE , PAID EARLIER . T HE TURNOVER WOULD , I.T.A. NO. 126 /JAB/201 8 ASSESSMENT YEAR:20 1 0 - 1 1 5 ACCORDINGLY, STAND UNDISTURBED A T THE AMOUNT REFLECTED IN THE BOOKS, I.E. , RS.365.44 LACS. 4 .3 THE SECOND ISSUE IS WITH REGARD TO THE ALLOWANCE OF INTEREST AND RE MUNERATION TO THE PARTNERS UPON ESTIMATING THE NET PROFIT OF THE CONTRACT BUSINESS AT 5% OF THE TURNOVER. THIS IS AS ONCE THE NET PROFIT HAS BEEN ESTIMATED, THERE IS PRESUMABLY NO QUESTION OF ANY SEPARATE ALLOWANCE OF ANY EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT. TOWARD THIS , THE MATTER , IN OUR VIEW,IS PURELY FACTUAL, THE ANSWER TO WHICH DEPENDS UPON WHETHER THE AO, WHILE ESTIMATING THE SAID PROFIT (OF THE BU SINESS) , IS ESTIMATING THE SAME BEFORE OR AFTER THE SAID EXPENDITURE WHICH, THOUGH DEDUCTIBLE IN COMPUTING A FIRMS INCOME, REPRESENTS, IN ESSENCE, THE MANNER OF WORKING THE SHARE OF THE INDIVIDUAL PARTNERS IN THE FIRM S A SEPARATE PERSON/ENTITY ( UNDER THE ACT ) FROM THE PARTNERS CONSTITUTING IT FOR THE TIME BEING , PROFIT . THE PURPORT OF THE ESTIMATION EXERCISE IS TO DETERMINE THE REAL INCOME OF AN ASSESSEE WHOSE REGULAR BOOKS OF ACCOUNT ARE FOUND NOT RELIABLE . IT IS THIS INCOME WHICH , SUBJECT OF COURSE T O THE OVERRIDING STATUTORY PROVISION S,IS TO BE INCLUDED IN COMPUTING AN ASSESSEES TOTAL INCOME. IN OTHER WORDS, IT IS FULLY COMPETENT FOR THE AO TO ESTIMATE THE ASSESSEES BUSINESS INCOME EITHER BEFORE OR AFTER ALLOWING THE SAID EXPENDITURE , IN WHICH LATT ER CASE THE ESTIMATE WOULD BE ARRIVED AT BY FACTORING THE AMOUNT OF THE SAID EXPENDITURE AND, THUS, LOWER THAN THE FORMER TO THE SAID EXTENT . THE MOTIVATION FOR A SEPARATE ALLOWANCE THEREOF AND, THEREFORE, THE ESTIMATION OF PROFIT PRIOR THERETO, COULD POSS IBLY BE ON ACCOUNT OF THE LEGAL POSITION THAT THE SAID EXPENDITURE, TO THE EXTENT ALLOWED IN THE FIRMS ASSESSMENT, IS ASSESSABLE IN THE HANDS OF THE INDIVIDUAL PARTNERS. WHERE, THEREFORE, NOT SEPARATELY DEDUCTED, NO AMOUNT WOULD STAND TO BE ASSESSED IN TH EIR HANDS EVEN AS, BEING OTHERWISE ELIGIBLE FOR DEDUCTION, WOULD STAND TO BE RECKONED WHILE ESTIMATING THE FIRMS INCOME U/S. 28. THE AO HAD , IN THE INSTANT CASE , ESTIMATED THE NET PROFIT AT 5% (OF THE TURNOVER), AND ALLOW ED THE SAID DEDUCTIONS THEREA FTER . THE ORIGINAL ASSESSMENT ORDER CLEARLY REFLECTS THE AO TO BE FULLY CONSCIOUS OF THE SAME WHILE MAKING THE I.T.A. NO. 126 /JAB/201 8 ASSESSMENT YEAR:20 1 0 - 1 1 6 ESTIMATE, AND OF HAVING APPLIED HIS MIND IN ALLOWING THE DEDUCTION ON ACCOUNT OF INTEREST AND REMUNERATION TO THE PARTNERS, I.E. , AS CLAIMED, BEI NG OTHERWISE ADMISSIBLE. A LOWER ESTIMATE BY HIM WOULD NOT B Y ITSELF MAK E HIS ORDER ERRONEOUS, PARTICULARLY CONSIDERING THAT THE LD. CIT HA D NOT FOUND HIS ORDER ERRONEOUS ON ACCOUNT OF A LOWER ESTIMATE PER SE, BUT DUE TO HIS HA VING ALLOWED , AFTER E STIMATIO N , DEDUCTION ON ACCOUNT OF INTEREST AND REMUNERATION TO THE PARTNERS. WHY, HE HIMSELF DIRECTS FOR APPLYING A NET PROFIT R ATE OF 5% ON THE ESCAPED TURNOVER (OF RS. 2.50 LACS), SO THAT HE FOUND THE SAME AS REASONABLE. THE AO, ACCORDINGLY, HAD NO JURISDICTI ON TO REVISIT HIS SAID ESTIMATE IN THE SET ASIDE PROCEEDINGS. THIS ALSO ANSWERS THE ASSESSEES ADDITIONAL GROUND , CHALLENGING THE REVISION IN ESTIMATE, IN ITS FAVOUR, EVEN AS THE LD. CIT(A) HAS ALSO HELD LIKE - WISE, SO THAT THERE IS NO WARRANT FOR THE SAID GROUND; THE REVENUE BEING NOT IN APPEAL. WE, THEREFORE, FIND NO BASIS FOR EITHER A RE VIEW OF THE SAID ESTIMATE, REVISED TO 8%,OR F OR RE GARD ING IT AS HAVING BEEN MADE AFTER THE ALLOWANCE OF INTEREST AND SALARY TO THE PARTNERS, SO AS TO PRECLUDE THEIR ALLOWANCE , AS ARGUED BY THE REVENUE. NO ADJUSTMENT IN RE S P EC T THEREOF IS ACCORDINGLY CALLED FOR. 4 . 4 THE THIRD AND LAST ADJUSTMENT IS TOWARDS THE INCOME OF RS.1,77,273/ - , NOT SEPARATELY ASSESSED. THESE INCOMES ARE INDEPENDENT OF THE ASSESSEES CONTRACT BUSINESS. WE ARE UNABLE TO SEE AS TO HOW THESE INCOMES, THE SOURCE WHEREOF IS A JEEP (VEHICLE) AND SURPL US (FOR THE TIME BEING) MONEY ( PLACED UNDER BANK DEPOSIT), WOULD NOT STAND TO BE ASSESSED SEPARATELY AS INCOME FROM OTHER SOURCES . FURTHER, THE AMOUNT CREDITED TO THE PROFIT AND LOSS ACCOUNT IN THEIR RE S P EC T REPRESENT S THE NET INCOME, WHICH W OULD THEREFO RE NOT REQUIRE ANY SEPARATE ADJUSTMENT THE DEPRECIATION SCHEDULE NOT B E AR ING JEEP FOR ADJUSTMENT OF DEPRECIATION , A STATUTORY ALLOWANCE , EXIGIBLE THEREON . IN FACT, NO CONTENTION EITHER AS RE GA RDS THE SAME BEING NOT SEPARATE OR INDEPENDENT INCOME S , OR TH E SET OF F OF ANY EXPENDITURE /ALLOWANCE AGAINST THE CREDITS IN THEIR RE S P EC T , H AS BEEN RAISED BY THE ASSESSEE AT ANY STAGE, INCLUDING BEFORE US. I.T.A. NO. 126 /JAB/201 8 ASSESSMENT YEAR:20 1 0 - 1 1 7 5 . THE ONLY ADJUSTMENT , THEREFORE, THAT OBTAINS CONSEQUENT TO THE SET ASIDE BY THE LD. CIT IS THE ASSESSMENT OF RS.1,77,273/ - AS INCOME FROM OTHER SOURCES U/S . 56, I.E. , A S ASSESSED. THE ASSESSEES BUSINESS INCOME SHALL CONTINUE TO BE AT RS.14,47,620/ - , I.E. , AS ORIGINAL ASSESSED. WE ARE CONSCIOUS THAT THE ALLOWANCE OF DEDUCTION FOR REMUNERATION TO PARTNERS, ALLOWED AT RS. 1,30,000, IS TO BE W.R.T. BOOK PROFIT ( EXPLANATION 4 TO S. 40(B)(V)) , SO THAT THE ENHANCEMENT IN INCOME UPON ESTIMATION WOULD HAVE NO BEARING ON THE QUANTUM OF THE SAID DEDUCTION. THE SAME, HOWEVER, HAS BEEN CONSIDERED W.R.T. THE ASSESSEES BOOK PROFIT , AND FOUND ALLOWABLE AT THE CLAIMED AMOUNT OF RS. 1,30,000. WE DECIDE ACCORDINGLY. 6 . IN THE RESULT, THE ASSESSEE S APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COU RT ON DECEMBER 24 , 2019 SD/ - SD/ - (B HAVNESH S AINI ) (S ANJAY ARORA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 24 / 12/2019 AKS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT : M/S . ANUJ KUMAR AGARWAL,COLLEGE ROAD, BETULGANJ, BETUL (MP) 460001 2. THE RESPONDENT : INCOME TAX OFFICER,AAYKARBHAWAN, CIVIL LINES,BETUL (M.P.) 3. THE CIT - 1, BHOPAL 4. THE CIT(A) - 1, BHOPAL 5. SR. DR, I.T.A.T.