Uma Cotton & Oil Industries, RAJKOT-GUJARAT V. The Deputy Commissioner of Income Tax (OSD), Range-2, RAJKOT-GUJARAT

ITA 13/RJT/2013

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1653 (ITAT-RAJKOT)
• Duration Of Justice: 6 year(s) 10 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 15-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Business income; Depreciation; Business expenditure; Principle of natural justice; Unabsorbed depreciation
• Section: 69C; 143(3); 201; 13; 69; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT (CONDUCTED THROUGH E - COURT AT AHMEDABAD) BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS . MADHUMITA ROY, JUDICIAL MEMBER ./ ITA NO . 13 /RJT /2013 / ASSTT. YEAR : 2008 - 20 09 M/S UMA COTTON & OIL INDUSTRIES , D - 25, MARKETING YARD , NEAR RTO , RAJKOT . PAN: AABFU7085L VS . D.C.I.T . (OSD) , RANGE - 2 , RAJKOT . (APPLICANT) (RESPON D ENT) ASSESSEE BY : SHRI MEHUL RANPURA , A.R REVENUE BY : SHRI SANJEEV JAIN , SR .D R / DATE OF HEARING : 1 5 / 10 / 201 9 / DATE OF PRONOUNCEMENT: 10 / 12 /201 9 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER : THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - III , RAJKOT DATED 29/11/2012 ( IN SHORT LD.CIT(A) ) ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DT. 20/12/2010 RELEVANT TO THE ASSESSMENT YEAR 2008 - 2009 . ITA NO. 13 /RJT/2013 ASSTT. YEAR 2008 - 09 2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1.0 THE GROUNDS OF APPEAL MENTIONED HEREUNDER ARE WITHOUT PREJUDICE TO ONE ANOTHER. 2.0 THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - LLL, RAJKOT [CIT(A)] ERRED ON FACTS AS ALSO IN LAW IN NOT DECIDING GROUND OF APPEAL THAT THE ORDER PASSED BY THE AO IN VIOLATION TO THE PRINCIPLE OF NATURAL JUSTICE IS TOTALLY BAD ON FACTS AS ALSO IN LAW, MAY KINDLY BE QUASHED. 3.0 THE LD. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN CONFIRMING REJECTION OF BOOKS OF ACCOUNT AND THEREBY DIRECTING TO ESTIMATE NET PROFIT @ 0.02% RESULTING INTO ADDITION OF RS.77,767/ - . BOOKS OF ACCOUNT MAY KINDLY BE DIRECTED TO BE ACCEP TED IN TOTO. 4.0 THE LD. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN DIRECTING TO TREAT THE BUSINESS INCOME ADMITTED DURING THE COURSE OF SURVEY OF ? 72,00,082/ - AS INCOME FROM OTHER SOURCES. THE SAME MAY KINDLY BE DIRECTED TO BE TREATED AS BUSINESS INCO ME BEFORE ARRIVING AT ESTIMATED NET PROFIT. 5.0 THE LD. CIT(A) ERRED ON FACTS AS ALSO IN LAW IN NOT ALLOWING SET OFF OF UNABSORBED DEPRECIATION FOR A.Y. 2006 - 07 FROM THE ASSESSED INCOME. THE SAME MAY KINDLY BE ALLOWED. 6.0 YOUR HONOR'S APPELLAN T CRAVES LEAVE TO ADD, AMEND, ALTER OR WITHDRAW ANY OR MORE GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF APPEAL. 2. T HE EFFECTIVE ISSUE RAISED BY THE ASSESS EE IS THAT THE LEARNED CIT (A) ERRED IN CONFIRMING THE ORDER OF THE AO BY REJECTING THE BOOKS OF A CCOUNTS OF THE ASSESSEE UNDER SECTION 145(3) OF THE ACT. 3. T HE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF KALA KAPAS AND GINNING AND PRESSING. THERE WAS THE SURV EY OPERATION UNDER SECTION 13 3A OF THE ACT AT THE BUSINESS PREMISES OF THE ASSESSEE DATED 22 JANUARY 2008. THE ASSESSEE DURING THE S URVEY MADE THE DISCLOSURE OF 7 2 , 40 , 900 .00 ON ACCOUNT OF THE FOLLOWING: I. EXCESS STOCK FOUND DURING THE SURVEY WHICH WAS NOT RECORDED IN THE BO OKS OF ACC OUNTS AMOUNTING TO 3 4 , 92 , 517 .00 II. C ASH PAYMENTS WERE MADE WITHOUT RECORDING THE SAME IN THE BO OKS OF ACCOUNTS AMOUNTING TO 3 7 , 07 , 765.00 3.1 T HE ASSESSEE IN ITS STATEMENT OF INCOME HAS DECLARED THE INCOME ADMITTED DURING THE SURVEY PROCEEDINGS UNDER THE HEAD INCOME FROM OTHER SOURCES. ITA NO. 13 /RJT/2013 ASSTT. YEAR 2008 - 09 3 3.2 HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS DECLARED TOTAL INCOME OF 3 0 , 04 , 570 .00 IN ITS RETURN OF INCOME DESPITE THE ASSESSEE DISCLOSED ADDITIONAL INCOME OF 7 2 , 40 , 900 .00 DURING THE ASSESSMENT PROCEEDINGS. ACCORDINGLY THE AO DISBELIEVED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND INVOKE D THE PROVISIONS OF SECTION 145( 3 ) O F THE ACT. AS SUCH THE AO WAS OF THE VIEW THAT BOTH THE CASH BOOK AND THE STOCK STATEMENT OF THE ASSESSEE WERE NOT CORRECT. HENCE , THE AO REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND E STIMATED THE GROSS PROFIT AT THE RATE OF 2.08% OF THE TURNOVER OF 3 8 , 88 , 34 , 620. 00. ACCORDINGLY THE AO WO RKED OUT THE GROSS PROFIT AT 8 0 , 87 , 760.00 AGAINST THE GROSS PROFIT DECLARED BY THE ASSESSEE AT 7 7 , 85 , 461 .00 LEADING TO A DIFFERENCE OF 3, 02 , 299.00. THUS THE AO WORKED OUT THE TOTAL INCOME OF THE ASSESSEE BY OBSERVING AS UNDER: THE NORMAL BUSINESS INCOME FOR THE CURRENT YEAR IS ESTIMATED AT RS.43,114/ - (BEING NET PROFIT DECLARED FOR A.Y. 2007 - 08) + RS.3,02,299/ - (ESTIMATED ADDITION TO BUSINESS INCOME) = RS.3,45,413/ - . TO THIS NORMAL INCOME OF RS.3,45,413/ - THE DISCLOSURE MADE BY THE ASSESSEE DURING THE COURSE OF SURVEY RS.72,40,900/ - IS REQUIRED TO BE ADDED AS PER THE RATION OF THE AHMEDABAD BENCHES OF THE TRIBUNAL WHICH WOULD GIVE THE TOTAL INCOME OF RS.75,86,317/ - . IN OTHER WORDS THE ESTIMATED INCOME FOR THE YEAR IS RS.3,45,413/ - AND TO THIS INCOME THE DISCLOSURE OF RS.7 5,86,316/ - . PENALTY PROCEEDING U/S.271(1)(C) R.W. EXPLANATION OF THE IT ACT IS DULY INITIATED. 4. A GGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LEARNED CIT (A) WHO CONFIRMED THE ORDER OF THE AO. BEING AGGRIEVED BY THE ORDER OF THE LEARNE D C IT - A THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED AR BEFORE US AGREED FOR THE DISALLOWANCE MADE BY THE AUTHORITIES BELOW. HOWE VER , THE LEARNED AR BEFORE US S UBMITTED THAT THE ASSESSEE IS ENTITLED FOR THE DEDUCTION ON ACCOUNT OF THE REMUNERATION /INTEREST PAID TO THE PARTNERS/RETIRING PARTNERS AND UNABSORBED DEPRECIATION BROUGHT FORWAR D FROM THE ASSESSMENT YEAR 2007 - 0 8. THE L EARNED AR IN SUPPORT OF HIS CONTENTION RELIED ON THE ORDER OF THIS TRIBUNAL IN THE CASE OF SARAWATI SALT & CHEMICALS VS. PR. CIT IN ITA NO. 146/RJT/2017 FOR THE AY 2012 - 13 DATED 28 - 07 - 2017. ITA NO. 13 /RJT/2013 ASSTT. YEAR 2008 - 09 4 6. ON THE OTHER HAND THE LEARNED DR VEHEMENTLY SUPPORTED THE ORDE R OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES WHETHER THE ASSESSEE IS ENTITLED FOR THE DEDUCTION ON ACCOUNT OF THE INTEREST AND REMUNERATION PAID TO THE PARTNERS AS WELL AS THE BROUGHT FORWARD UNABSORBED DEPRECIATION AGAINST THE INCOME DECLARED UNDER THE HEAD OTHER SOURCES UNDER SECTION 69 OF THE ACT. IN THIS REGARD WE NOTE THAT THIS TRIBUNAL IN THE CASE OF SARAWATI SALT & CHEMICAL S (SUPRA) AFTER HAVING RELIANCE ON THE JUDGMENT OF HON BLE HIGH COURT HAS DIRECTED TO ALLOW THE RELIEF TO THE ASSESSEE ON ACCOUNT OF REMUNERATION/INTEREST TO THE PARTNERS AND BROUGHT FORWARD UNABSORBED DEPRECIATION. THE RELEVANT EXTRACT OF THE ORDER IS REP RODUCED AS UNDER: 4. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO RIVAL SUBMISSIONS. LEARNED CIT S ONLY REASON IN EXERCISING HIS SECTION 263 JURISDICTION IS THAT ASSESSEE'S ADDITIONAL INCOME IS NOT LIABLE FOR ANY CORRESPONDING EXPENDITURE PERTAINING TO PARTNER'S REMUNERATION AND INTEREST HEREINABOVE. HE THEREFORE DIRECTS THE ASSESSING OFFICER TO FRAME CONSEQUENTIAL, ASSESSMENT AFRESH THEREBY REVISING EARLIER ASSESSMENT ORDER ACCEPTING THE ABOVE TWO EXPENDITURE HEADS. WE NOTICE THAT HON'BLE JURISDICTIONAL HIGH COURT HAD EARLIER HELD IN FAKIR MOHAMED HAJI HASAN VS. CIT (2001) 247 ITR 290 (GUJ) THAT ANY ADDITION MADE U/S. 69 TO 69C OF THE ACT WOULD NOT BE AVAILABLE FOR A CORRESPONDING DEDUCTION UNDER ANY OTHER PROVISION. IT REITERATED THE SAME VIEW IN KRISHN A TEXTILES VS. CIT (2009) 310 ITR 227 (GUJ). THEIR LORDSHIPS THEREAFTER DISTINGUISHED THE SAID CASE LAW IN DCIT VS. RADHE DEVELOPERS INDIA LTD. (2010) 329 ITR L(GUJ) AFTER HOLDING THAT THE SAME WERE CONTRARY TO SCHEME ENVISAGED IN THE ACT FOR TAXATION OF A NY INCOME UNDER ANY HEAD EXCEPT THOSE STATED U/S. 14 OF THE ACT. HON'BLE JURISDICTIONAL HIGH COURT'S YET ANOTHER DECISION IN SHILPA DYEING & PRINTING MILLS PVT. LTD. 219 TAXMAN 279 OBSERVED THAT ITS EARLIER TWO DECISIONS HEREINABOVE CONSIDERED SCHEME OF TH E ACT REGARDING SPECIFIC HEADS OF INCOME. THEIR LORDHSIPS THEREAFTER HELD THAT THE PROVISIONS REGARDING SET OFF OF LOSS U/S.71 OF THE ACT WOULD APPLY AGAINST AN ADDITIONAL INCOME DISCLOSED DURING SURVEY AS THE SAME HAS TO FALL UNDER ANY OF THE HEAD OF IN COME U/S.14 OF THE ACT. WE TAKE INTO CONSIDERATION ALL THESE LEGAL DEVLEOPEMENTS VIS - - VIS RELEVANT FACTS OF THE INSTANT CASE TO OBSERVE THAT ONCE THE ASSESSEE HAS DECLARED ITS ADDITIONAL INCOME DISCLOSED DURING SURVEY AS BUSINESS INCOME IN ABSENCE OF ANY OTHER SOURCE OF INCOME, THE SAME IS LIABLE FOR ALL CORRESPONDING BUSINESS EXPENSES AS PER LAW INCLUDING PARTNER S REMUNERATION AND INTEREST. WE THUS HOLD THAT THE ASSESSING OFFICER HAD RIGHTLY NOT DISALLOWED THE ABOVE EXPENSES AGAINST ASSESSEE S ADDITIONA L INCOME HEREINABOVE DISCLOSED DURING THE SURVEY. THE SAID ASSESSMENT ORDER THEREFORE CAN NEITHER BE CALLED ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE ACCORDINGLY REVERSE LEARNED CIT S ORDER PASSED U/S.263 OF THE ACT. I N VIEW OF THE ABOV E, WE HOLD THAT THE ASSESSEE IS ENTITLED FOR THE DEDUCTION ON ACCOUNT OF THE REMUNERATION/INTEREST PAID TO THE CONTINUING AND RETIRING PARTNERS ITA NO. 13 /RJT/2013 ASSTT. YEAR 2008 - 09 5 AND UNABSORBED DEPRECIATION BROUGHT FORWARD FROM THE EARLIER ASSESSMENT YEAR. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. IN THE RESULT , THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE COURT ON 10 /12 / 2019 AT AHMEDABAD. - SD - - SD - (MS MADHUMITA ROY ) (WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 10 / 12 /2019 MANISH