The ITO Ward-6(4), Ahmedabad V. Shri Ismail A Tadha, Ahmedabad

ITA 1328/AHD/1999

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9795 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 year(s) 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-09-2010
• Assessment Year: 1992-1993
• Appeal Filed On: 11-06-1999
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: S N DIVETIA
• Keywords: Rejection of books of accounts
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : AHMEDABA D (BEFORE HON'BLE SHRI T.K. SHARMA, J.M. & HONBLE S HRI A.N. PAHUJA, A.M.) I.T.A. NO. 1328/AHD./1999 ASSESSMENT YEAR : 1992-1993 INCOME TAX OFFICER, WARD-6(4), VS.- ISMAILB HAI A. TADHA, AHMEDABAD AHMEDABAD (THROUGH LEGAL HEIR SHRI MOHAMEDBHAI I. TADHA) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.K. DHANESTA, D .R. RESPONDENT BY : SHRI S.N. DIVETIA O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 26.03.1999 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-VII, AHMEDABAD FOR THE ASSESSMENT YEAR 1992-92. 2. THE GROUND NO. 1 RAISED BY THE REVENUE IN ITS AP PEAL IS AGAINST DELETING THE ADDITION OF RS.7,17,944/- ON ACCOUNT OF ACCRUED RENT. BRIEF FAC TS RELATING TO THE CONTROVERSY INVOLVED IN THIS GROUND OF APPEAL ARE THAT THE ASSESSEE IS AN INDIVI DUAL. HE IS CARRYING ON PROPRIETARY BUSINESS OF TRUCK PLYING. IN THE ASSESSMENT YEAR UNDER APPEAL, HE HAS SHOWN HIRE RECEIPT OF RS.12,04,656/-. THE ASSESSING OFFICER EXAMINED THE HIRE AGREEMENT W ITH VARIOUS PARTIES. THE ASSESSING OFFICER IN PARA 7 OF THE ASSESSMENT ORDER OBSERVED THAT THE ASSESSEE HIRED OUT 21 TRUCKS TO VARIOUS PARTIES. OUT OF THESE, 4 TRUCKS HAVE BEEN SOLD. IN THE ASSES SMENT ORDER, THE ASSESSING OFFICER WORKED OUT THE DIFFERENCE BETWEEN THE HIRE RECEIPTS DECLARED A ND AS PER AGREEMENT RECEIVABLE AT RS.7,17,944/-. THE ASSESSING OFFICER ASKED THE ASSE SSEE TO EXPLAIN WHY THE DUE RENT HAS NOT BEEN OFFERED TO TAX. SINCE BEFORE THE ASSESSING OFFICER, NO EXPLANATION WAS OFFERED, HE BROUGHT TO TAX THE ACCRUED/ DUE RENT/ HIRE CHARGES AMOUNTING TO RS .7,17,944/- AND INCLUDED THE SAME TO THE INCOME OF THE ASSESSEE. 3. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), THE LD. COUNSEL OF THE ASSESSEE CONTENDED THAT THE ASSESSEE WAS ACCOUN TING THE TRUCK HIRE CHARGES ON CASH BASIS. THIS FACT WAS EVIDENT FROM THE REMARKS MADE BY THE AUDITORS IN ITEM NO. 2 OF THEIR REPORT 2 ITA NO. 1328/AHD/1999 FURNISHED IN FORM NO.3CD FOR THE ASSESSMENT YEAR 19 91-92. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), IT WAS ALSO STATED THAT THE ASSESSEE HAS BEEN TAXED IN THE ASSESSMENT YEAR 1991-92 WHERE THE HIRE CHARGES WERE TREATED AS ITS INCOME. THE METHOD OF ACCOUNTING OF HIRE CHARGES ADOPTED BY THE ASSESSEE WAS CONSISTENT AND REGULAR. AFTER CONSIDERING THESE SUBMISSIONS, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE ADDITION FOR THE DETAILED REASONS GIVEN IN PARA 7, WHICH READS AS UN DER :- 7. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE L EARNED COUNSEL FOR THE APPELLANT, THE LEGAL POSITION IN THE MATTER AND THE FACTS AVAILABLE ON RECORD. I FIND CONSIDERABLE FORCE IN THE ARGUMEN TS PUT FORTH BY THE LEARNED COUNSEL FOR THE APPELLANT. IT IS A FACT THA T THE APPELLANT HAS BEEN REGULARLY AND CONSISTENTLY FOLLOWING THE CASH SYSTEM OF ACCOUNTING. THE AUDITORS HAVE ALSO MENTIONED THIS F ACT IN THEIR AUDIT REPORT. IT IS ALSO A FACT THAT THE APPELLANT HAD RE CEIVED HIRE CHARGES IN ADVANCE WHICH WERE ACCOUNTED FOR ON CASH BASIS AND TAXED IN THE YEAR OF RECEIPT. THE SAME INCOME CANNOT BE TAXED TWICE. ONCE THE APPELLANT WAS FOLLOWING THE CASH SYSTEM OF ACCOUNTING AND THE RE WAS NO CHANGE IN THE METHOD OF ACCOUNTING, THERE WAS NO JUSTIFICA TION TO ASSESS THE INCOME ON THE BASIS OF MERCANTILE SYSTEM WITHOUT BR INGING ANY MATERIAL ON RECORD. HAVING REGARD TO THE FACTS AND CIRCUMSTA NCES BROUGHT OUT ABOVE, THE ADDITION OF RS.7,17,944/- MADE ON ACCOUN T OF ACCRUED REND IS HEREBY DELETED. AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING, ON BEHALF OF THE REVENUE SHRI R.K. DHANESTA, LD. D.R. APPEARED AND RELYING ON THE REASONING GIVEN BY THE ASSESSING OFFICER CONTENDED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIE D IN DELETING THE ADDITION. HE POINTED OUT THAT SINCE NO EXPLANATION WAS FURNISHED BEFORE THE ASSESSING OFFICER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIED IN ACCEPTIN G THE FRESH EXPLANATION. HE CONTENDED THAT THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS CLEAR LY MENTIONED THAT METHOD OF ACCOUNTING OF THE ASSESSEE IS MERCANTILE, THEREFORE, THE ADDITION OF RS.7,17,944/- WAS RIGHTLY MADE BY THE ASSESSING OFFICER. 5. ON THE OTHER HAND, SHRI S.N. DIVETIA, LD. COUNSE L APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIO NER OF INCOME TAX(APPEALS). THE LD. 3 ITA NO. 1328/AHD/1999 COUNSEL OF THE ASSESSEE SUBMITTED THAT BEFORE THE L EARNED COMMISSIONER OF INCOME TAX(APPEALS) THE ASSESSEE HAS FURNISHED DETAILED CH ART SHOWING HOW THE ADVANCED HIRE CHARGES WERE TAXED IN THE YEAR OF RECEIPTS. THE LEARNED COM MISSIONER OF INCOME TAX(APPEALS) AFTER VERIFYING DELETED THE SAME. THEREFORE, THE VIEW TAK EN BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BE UPHELD. 6. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY G ONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE ASSESSME NT YEAR 1991-92, THE ASSESSING OFFICER HAS TAXED WHATEVER THE ASSESSEE HAD RECEIVED AS INCOME. THIS METHOD OF ACCOUNTING IS CONSISTENTLY FOLLOWED BY THE ASSESSEE. IN THE ASSESSMENT YEAR UN DER APPEAL, THE ASSESSING OFFICER TAXED THE HIRE CHARGES ON RECEIPT BASIS. IN THESE CIRCUMSTANC ES, WE ARE OF THE VIEW THAT LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN COGEN T REASON FOR DELETING THE ADDITION OF RS.7,17,944/-, WHICH WAS MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF HIRE CHARGES. RESULTANTLY, THIS GROUND OF APPEAL IS REJECTED. 7. GROUND NO. 2 OF THIS APPEAL IS AGAINST DELETING THE DISALLOWANCE OF INTEREST AMOUNTING TO RS.4,09,618/- UNDER SECTION 36(1)(III). IN THE ASSE SSMENT ORDER, THE ASSESSING OFFICER DISALLOWED INTEREST EXPENSE AMOUNTING TO RS.4,09,618/- ON THE GROUND THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES/ LOANS TO VARIOUS PARTIES. ACCORDING TO ASSESSING OFFICER, SUCH LOANS AND ADVANCES AMOUNTS TO RS.22,75,661/- ON WHICH NO INTEREST WAS CHARGED. IT WAS FURTHER STATED THAT THE ASSESSEE HAD INVESTED AS CAPITAL IN THE FIRM AMOUNT ING TO RS.4,13,451/- AND HAD ALSO SOLD 14 TRUCKS BUT REPAYMENT TO THE BANK TOWARDS LOANS AND INSTALLMENTS WAS NOT MADE. ON THIS BASIS, THE ASSESSING OFFICER CONCLUDED THAT BORROWINGS WERE DI VERTED FOR NON-BUSINESS USE AND HE ESTIMATED THE INTEREST @ 18% AND MADE DISALLOWANCE OF RS.4,09,618/-. 8. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF INC OME TAX(APPEALS), IT WAS CONTENDED THAT THE TRUCKS WERE PURCHASED BY TERMED LOAN FROM THE BANK AND, THEREFORE, THERE WAS NO QUESTION OF DIVERTING THE BORROWED FUNDS FOR NON-BU SINESS PURPOSES. IT WAS ALSO POINTED OUT THAT THE ASSESSING OFFICER HAS NOT BEEN ABLE TO PROVE TH AT THE ADVANCES TO THE VARIOUS PARTIES WERE OUT OF THE BORROWED FUNDS. THERE IS NO NEXUS BETWEEN TH E BORROWINGS AND THE AMOUNT DUE FROM VARIOUS PARTIES. IT WAS ALSO POINTED OUT THAT SOME OF THE ADVANCES, ON WHICH NO INTEREST HAS BEEN 4 ITA NO. 1328/AHD/1999 CHARGED, RELATE TO DUES OF SALE OF TRUCKS AND MOST OF THEM WERE SOLD AND MOST OF THEM WERE OLD BALANCES. APART FROM THIS, IT WAS CONTENDED THAT TH E ASSESSEE WAS HAVING HUGE CREDIT BALANCE TO THE CREDIT OF HIS CAPITAL ACCOUNT, I.E. RS.26,33,14 5/- AND IT WAS SUFFICIENT TO ADVANCE THE INTEREST FREE LOANS. AFTER CONSIDERING ALL THESE CIRCUMSTANC ES, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) DELETED THE DIS ALLOWANCE OF INTEREST OF RS.4,09,618/- FOR THE DETAILED REASONS GIVEN IN PARA 10, WHICH IS AS UNDER :- 10. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FOR THE APPELLANT, THE LEGAL POSITION IN THE MATTER AND THE FACTS AVAILABLE ON RECORD. I FIND CONSIDERABLE FORCE IN THE ARGUMENTS PUT FORTH BY THE LEARNED COUNSEL FOR THE APPELLANT. IT IS A FACT THAT ALL TH E FIGURES OF INTEREST FREE ADVANCES/ LOANS WORKED OUT BY THE A.O. IN THE ASSES SMENT ORDER ARE NOT ADVANCES/ LOANS. THEY ALSO RELATE TO DUES TO BE REA LIZED FROM THE SALE OF TRUCKS ETC. AND MOST OF THEM ARE OLD BALANCES AND T HE ADVANCES/ LOANS GIVEN TO THE RELATIVES ARE NOT VERY SUBSTANTIAL. EV EN IF THEY ARE SUBSTANTIAL, THE HUGE CREDIT BALANCE SHOWN IN THE CAPITAL ACCOUN T OF THE PARTNER IS SUFFICIENT TO MEET OUT THE SAID ADVANCES/LOANS. FUR THER, BEFORE MAKING ANY SUCH DISALLOWANCE, A NEXUS WAS TO BE ESTABLISHED BE TWEEN THE INTEREST BEARING LOANS TAKEN BY THE ASSESSEE AND THE INTERES T FREE LOANS GIVEN BY IT. AS HAS BEEN HELD IN THE CASE OF SHAHIBAUG ENTERPRIS ES VS.- ITO BY THE ITAT, AHMEDABAD BENCH (50 ITD 113), NO DISALLOWANCE CAN BE MADE UNLESS A CLEAR-CUT NEXUS HAS BEEN ESTABLISHED BETWE EN THE INTEREST BEARING LOANS TAKEN AND THE INTEREST FREE LOANS GIVEN. HAVI NG REGARD TO THE FACTS AND CIRCUMSTANCES BROUGHT OUT ABOVE, I DO NOT SEE A NY JUSTIFICATION IN MAKING THE DISALLOWANCE OF RS.4,09,618/- AND ACCORD INGLY THE SAME IS DELETED. 9. AT THE TIME OF HEARING, THE LD. D.R. RELYING ON THE REASONING GIVEN BY THE ASSESSING OFFICER CONTENDED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) IS NOT JUSTIFIED IN DELETING THE ADDITION OF RS.4,09,618/- MADE BY THE ASSESSING OFFICER. 10. ON THE OTHER HAND, THE LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF LEARNED COMMISSIONER OF INCO ME TAX(APPEALS). 11. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AU THORITIES BELOW. IT IS PERTINENT TO NOTE THAT WHATEVER CAPITAL CONTRIBUTED BY THE ASSESSEE IN THE PARTNERSHIP FIRM, WHEREIN HE IS A PARTNER, IS FOR THE PURPOSE OF BUSINESS. ALL THE FIGURES OF INT EREST-FREE ADVANCES/ LOANS WORKED OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER ARE NOT A DVANCES/ LOANS AS POINTED OUT BY THE LD. 5 ITA NO. 1328/AHD/1999 COUNSEL OF THE ASSESSEE. AS A MATTER OF FACT, SOME OF THE ADVANCES/ LOANS ARE DUE OF SALE OF TRUCKS. WE ARE OF THE VIEW THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN COGENT REASON FOR DELETING THE DISALLOWANCE OF RS.4,09,618 /-. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). RES ULTANTLY, THIS GROUND OF APPEAL IS REJECTED. 12. THE LAST GROUND OF APPEAL IS AGAINST DELETING T HE ADDITION OF RS.6,05,471/- MADE BY THE ASSESSING OFFICER BY REJECTING THE BOOKS OF ACCOUNT S UNDER SECTION 145 OF THE INCOME TAX ACT, 1961. 13. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS ON THE GROUND THAT FREIGHT RECEIPTS WERE SHOWN AT RS.1,51, 19,370/- AGAINST THE DIESEL EXPENSES OF RS.5,17,497/-. THE ASSESSING OFFICER WORKED OUT THE DIESEL RECEIPT RATIO AT 2.92. THE ALSO REPRODUCED THE MONTH-WISE DETAILS OF RECEIPTS AND D IESEL EXPENSES IN THE BODY OF THE ASSESSMENT ORDER AND OBSERVED THAT THERE HAS BEEN A SHARP FALL IN THE DIESEL TO RECEIPT RATIO. HE ALSO ASKED THE ASSESSEE TO SHOW-CAUSE AS TO WHY THE DIESEL RECEIPT RATIO OF 3.5 SHOULD NOT BE ADOPTED. THE ASSESSING OFFICER ADOPTED THE AVERAGE FIGURE OF SIX MONTHS WHERE THE RATIO WAS SHOWN MORE THAN 3 WHICH WORKED OUT TO 4.17 AND ESTIMATED THE FREIGH T RECEIPTS WHICH WORKED OUT TO RS.21,57,962/- AND MADE THE ADDITION OF RS.6,46,025 /-. WHILE MAKING THE AFORESAID ADDITION, THE ASSESSING OFFICER OBSERVED THAT NO CONSUMPTION REGI STER OF SPARE AND SPARE PARTS WAS MAINTAINED ON DAY-TO-DAY BASIS AND, THE PROVISIONS OF SECTION 145(1) WERE APPLICABLE. ACCORDINGLY, THE ASSESSING OFFICER INVOKED THE PROVISIONS CONTAINED IN SECTION 145(1) OF THE ACT. 14. ON APPEAL BEFORE THE LEARNED COMMISSIONER OF IN COME TAX(APPEALS), IT WAS CONTENDED THAT THE ASSESSEE WAS NOT HAVING ANY FIXED CONTRACT AND WAS CARRYING ON TRANSPORT WORK OF DIFFERENT PARTIES AND THEREFORE, THE RATES AND OTHE R TERMS DEPENDED UPON THE MARKET PREVAILING AT A PARTICULAR DAY. IN MODASSA, THERE ARE NUMBER OF T RUCK TRANSPORTERS AND THE FREIGHT CHARTES ARE NOT FIXED BUT DEPENDING UPON THE MARKET CONDITIONS AND IT VARIES FROM PARTY TO PARTY AND DAY-TO- DAY. HE POINTED OUT THAT THE AVERAGE RECEIPTS WERE ACCOUNTED FOR ON THE BASIS OF SUCH MATERIAL. HE CONTENDED THAT THE ASSESSING OFFICER HAD ADOPTED THE AVERAGE RATIO OF ONLY THOSE MONTHS WHERE HIGHEST FIGURES WERE SHOWN. AFTER CONSIDERING ALL THESE CIRCUMSTANCES, IN THE IMPUGNED 6 ITA NO. 1328/AHD/1999 ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEA LS) RESTRICTED THE ADDITION OF RS.6,05,471/- FOR THE DETAILED REASONS GIVEN IN PAR A 4, WHICH IS AS UNDER :- I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LD. COUNSEL FOR THE APPELLANT, THE LEGAL POSITION IN THE MATTER AND THE FACTS AVAILABLE ON RECORD. I FIND CONSIDERABLE FORCE IN THE ARGUMENTS PUT FORT H BY THE LD COUNSEL FOR THE APPELLANT. IT IS A FACT THAT THE SHOW CAUSE NOT ICE FOR ADOPTING THE RATIO OF 3.5 WAS ISSUED TO THE APPELLANT. HOWEVER, SUBSEQ UENTLY, THE RATIO WAS ADOPTED AT 4.17 ON THE BASIS OF THE AVERAGE FIGURES OF SIX MONTHS ADOPTED ON A SELECTIVE BASIS. AS REGARDS THE DEFECTS POINTE D OUT IN THE BOOKS OF ACCOUNTS, IT IS A WELL KNOWN FACT THAT THE DAY TO D AY CONSUMPTION DETAILS ARE NOT POSSIBLE TO MAINTAIN IN THIS LINE OF BUSINESS. THE APPELLANTS CASE ITSELF IS THE BEST COMPARABLE CASE. IN THE IMMEDIATELY THR EE PRECEDING YEARS, A RATIO AROUND 3 HAS BEEN SHOWN BY THE APPELLANT. DUR ING THE YEAR UNDER APPEAL, IT HAS SHOWN AT 2.92. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES STATED ABOVE, IT WOULD BE FAIR AND REASONABLE TO AD OPT THE RATIO OF 3. THE A.O. IS DIRECTED TO WORK OUT THE ADDITION ACCORDING LY AND RESTRICT THE ADDITION AS INDICATED ABOVE. 15. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AU THORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE SHOW CAUSE NOTICE FOR ADOPTING THE RATIO OF 3.5 WAS ISSUED TO THE APPELLANT. HOWEVER, SUBSEQUENTLY, THE RATIO WAS ADOPTED AT 4.17 ON THE BASIS OF THE AVERAGE FIGURES OF SIX MONTHS ADOPTED ON A SELECTIVE BASIS. AS REGARDS THE DEFECT S POINTED OUT IN THE BOOKS OF ACCOUNTS, IT IS A WELL KNOWN FACT THAT THE DAY TO DAY CONSUMPTION DET AILS ARE NOT POSSIBLE TO MAINTAIN IN THIS LINE OF BUSINESS. THE APPELLANTS CASE ITSELF IS THE BES T COMPARABLE CASE. IN THE IMMEDIATELY THREE PRECEDING YEARS, A RATIO AROUND 3 HAS BEEN SHOWN BY THE APPELLANT. DURING THE YEAR UNDER APPEAL, IT HAS SHOWN AT 2.92. WE ARE OF THE VIEW THAT THE L EARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN COGENT REASON FOR RESTRICTING THE ADDITIO N OF RS.6,05,471/-. WE, THEREFORE, INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS). RESULTANTLY, THIS GROUND OF APPEAL IS REJECTED. 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 24.09.201 0 SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 24/ 09 / 2010 7 ITA NO. 1328/AHD/1999 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT CONCERNED, (4) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGIS TRAR, ITAT, AHMEDABAD LAHA/SR.P.S.