Shri Paragkumar R.Shah, Baroda V. The Income tax Officer,Ward-2(2), Baroda

ITA 1441/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60466 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 05-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: J P SHAH
• Section: 40A(3); 194C

Judgement Text

ITA NO.1441 /AHD/2010 A.YR.. 2006 -07. 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCHAHM EDABAD (BEFORE SHRI D. K. TYAGI, JM & SHRI ANIL CHATURVEDI A.M.) I.T.A. NO. 1441 /AH D/2010. (ASSESSMENT YEAR: 2006-07) SHRI PARAGGKUMAR R. SHAH PROP. YAMUNA TRADING CO. & SHREEJI TRANSPORT CO., 10,DEVKI NANDAN COMPLEX, MAKARPURA MAIN ROAD, BARODA. (APPELLANT) VS. INCOME TAX OFFICER, WARD 2(2), AAYAKAR BHAVAN, NEAR RACE COURSE CIRCLE, BARODA. (RESPONDENT) PAN: AJMPS 0597F APPELLANT BY : SHRI J.P.SHAH RESPONDENT BY : SHRI VINOD TANWANI, SR. D.R. ( )/ ORDER DATE OF HEARING : 1-5-2012 DATE OF PRONOUNCEMENT : 31-5-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF CIT (A)II, BARODA DATED 19-1-2010 FOR THE ASSESSMENT YEAR 2006 -07. 2. THE ASSESSEE IN HIS APPEAL HAS TAKEN FOLLOWING G ROUNDS OF APPEAL:- YOUR APPELLANT BEING DISSATISFIED WITH THE ORDER PASSED BY THE LD. CIT (A) II, BARODA, PRESENTS THIS APPEAL AGAIN ST THE SAME ON THE FOLLOWING AMONGST OTHER GROUNDS. ITA NO.1441 /AHD/2010 A.YR.. 2006 -07. 2 1. THE LD. CIT (A)-II, HAS ERRED IN CONFIRMING THE ADDITION OF RS.19,67,294/- AS BEING HIT BY PROVISIONS OF SEC. 4 0(A)(IA) OF THE ACT ON THE FACT AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A)-II OUGHT TO HAVE DELETED THE ADDITION. 2. THE LD. CIT (A)-II HAS ERRED IN CONFIRMING THE A DDITION OF RS.50,560/- UNDER THE PROVISIONS OF SECTION 40A(3) OF THE ACT. ON THE FACT AND CIRCUMSTANCES, THE LD. CIT (A)-II O UGHT TO HAVE DELETED THE ADDITION. 3. THE LD. CIT (A)-II HAS ERRED IN PARTLY CONFIRMIN G THE ADDITION ON ACCOUNT OF GROSS PROFIT. THE LD. CIT (A)-II OUGHT T O HAVE DELETED THE ENTIRE ADDITION. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF TRADING IN HARDWARE AND SANITARYWARE IN HIS PROPRIETARY CONCERN BY THE NAME OF YAMUNA TRADING CO. HE ALSO RUNS ANOT HER PROPRIETARY CONCERN BY THE NAME OF SHREEJI TRANSPORT WHICH IS E NGAGED IN THE BUSINESS OF TRANSPORTATION OF BRICKS, SAND ETC. THE ASSESSEE HAS FILED RETURN OF INCOME ON 20-12-2006 DECLARING INCOME AT RS.2,67,92 0/-. THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT W AS COMPLETED ON 26- 12-2008 DETERMINING THE TOTAL INCOME AT RS.26,98,62 0/-AFTER MAKING VARIOUS ADDITIONS. 4. 1 ST GROUND IS WITH RESPECT TO THE ADDITION OF RS. 19,6 7,294/- AS BEING HIT BY PROVISIONS OF S. 40(A)(IA) OF THE ACT. 5. DURING THE COURSE OF ASSESSMENT PROCEEDING THE A .O. NOTED THAT THE ASSESSEE HAS DEBITED FREIGHT EXPENSES OF RS.19,67,2 94/- TO THE PROFIT AND LOSS ACCOUNT. THE A.O. WAS OF THE VIEW THAT THESE P AYMENTS WERE COVERED U/S. 194C OF THE I.T. ACT. SINCE THE ASSESSEE HAD F AILED TO DEDUCT TAX, THE ITA NO.1441 /AHD/2010 A.YR.. 2006 -07. 3 A.O. INVOKED THE PROVISIONS OF SECTION 40(A)(IA) AN D DISALLOWED THE CLAIM OF EXPENSES TO THE EXTENT OF RS.19,67,294/-. THE ASSES SEE CARRIED THE MATTER IN APPEAL AGAINST THIS DISALLOWANCE BEFORE THE CIT (A). 6. CIT (A) HELD THAT SINCE THE ASSESSEE HAS NOT DED UCTED AND PAID THE TDS WITHIN THE PRESCRIBED TIME LIMIT, THE A.O. WAS JUSTIFIED IN DISALLOWING THE CLAIM OF ASSESSEE. HE HOWEVER DIRECTED THE A.O. TO ALLOW THE CL.AIM OF RS.19,67,294/- IN THE YEAR IN WHICH THE TAX HAS BEE N DEDUCTED AND PAID TO THE ACCOUNT OF GOVERNMENT. 7. AGGRIEVED BY THE DECISION OF CIT (A), THE ASSESS EE IS IN APPEAL BEFORE US. 8. BEFORE US IT WAS CONTENDED BY THE LD. A.R. THAT THE ASSESSEE ON BECOMING AWARE ABOUT ITS RESPONSIBILITY TO DEDUCT T DS, HAS DEDUCTED TDS AND PAID IT TO THE ACCOUNT OF THE GOVERNMENT. HE PO INTED OUT TO THE SUBMISSION MADE BY IT BEFORE CIT (A) AND WHICH HAS STATED IN PARA 2.2. OF THE CIT(A) ORDER. HE THEREFORE, SUBMITTED THAT SINC E THE ASSESSEE HAS MADE THE PAYMENT OF TDS THE DISALLOWANCE MADE BY TH E A.O. BE DELETED. THE LD. A.R. FURTHER RELIED ON THE DECISION OF SPEC IAL BENCH IN THE CASE OF MERILYN SHIPPING & TRANSPORT VS. ACIT (ITAT VISHAKA PATNAM) (ITA NO.477/VIZ/2008). HE THEREFORE, URGED THAT THE ADDI TION U/S. 40 (A) (IA) BE DELETED. 9. THE LD. D.R. ON THE OTHER HAND RELIED ON THE ORD ER OF THE A.O. ITA NO.1441 /AHD/2010 A.YR.. 2006 -07. 4 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS PAID FREIGHT CHARGES AND TDS U/S. 194C WAS ALSO DEDUCTIBLE ON THE SAME. THE ASSESSEE DID NOT DEDUCT TDS BEFORE MAKING THE PAYMENT. BEFORE US IT WAS SUBMITTED THAT THE TDS HAS BEEN PAID SUBSEQUENTLY AND THEREFORE IT HAS COMPLIED WITH THE PROVISIONS OF THE ACT. HOWEVER, THE LOWER AUTHORITI ES HAVE NOT GIVEN ANY FINDING AS TO WHETHER THE ASSESSEE HAS MADE ALL THE PAYMENTS OF FREIGHT CHARGES BEFORE THE YEAR END. IN THE CASE OF MERILYN SHIPPING & TRANSPORTS VS. ACIT (SUPRA) THE SPECIAL BENCH OF THE TRIBUNAL HAS HELD THAT ONLY OUTSTANDING AMOUNT OR THE PROVISION FOR EXPENSES (A ND NOT THE AMOUNT ALREADY PAID) IS LIABLE TO DISALLOWANCE IF TDS IS N OT DEDUCTED. SEC. 40(A) (IA) CAN APPLY TO EXPENDITURE WHICH IS PAYABLE AS ON 31ST MARCH AND DOES NOT APPLY TO EXPENDITURE WHICH HAS ALREADY BEEN PAI D. RESPECTFULLY FOLLOWING THE DECISION OF SPECIAL BENCH, WE REMIT T HE ISSUE TO THE FILE OF A.O. FOR VERIFICATION AND DIRECT HIM TO ALLOW AS PE R THE DECISION OF SPECIAL BENCH. THE A.O. SHALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO ASSESSEE. THIS GROUND IS THEREFORE ALLOWED FOR STATISTICAL PU RPOSE. 11. GROUND. NO. 2 IS WITH RESPECT TO THE ADDITION O F RS.50,560/- MADE U/S. 40A(3) OF THE ACT. ON VERIFICATION OF THE BAN K ACCOUNT AND STATEMENT, IT WAS NOTED BY THE A. O. THAT THE ASSESSEE HAD MADE P AYMENTS AGGREGATING TO RS.2,52,800/- BY CASH/BEARER CHEQUE EACH OF WHI CH WERE MORE THAN RS.20,000/-. 12. THE A.O. INVOKED THE PROVISIONS OF SEC. 40A(3) AND DISALLOWED 20% OF THE PAYMENT MADE IN CASH (DISALLOWANCE BEING RS .50,560/-). AGGRIEVED BY THE DECISION OF A.O. THE ASSESSEE CARRIED THE MA TTER BEFORE CIT (A). ITA NO.1441 /AHD/2010 A.YR.. 2006 -07. 5 13. AFTER CONSIDERING THE SUBMISSIONS OF THE A.R., CIT (A) UPHELD THE DECISION OF A.O. BY HOLDING THAT ASSESSEES DID NOT FALL UNDER ANY OF THE SPECIAL CONDITIONS SPECIFIED IN RULE 6DD OF THE I.T . RULES. 14. AGAINST THE ABOVE CONFIRMATION OF THE DISALLOWA NCE THE ASSESSEE IS NOW IN APPEAL BEFORE US. 15. THE LD. A.R. SUBMITTED THAT THE PAYMENTS IN CAS H WERE MADE TO TRANSPORTERS WHO WERE UNKNOWN PARTIES AND THEY DEMA NDED CASH PAYMENTS. IT WAS FURTHER STATED THAT PAYMENTS IN CA SH WERE MADE OUT OF COMPULSION. HE THEREFORE, URGED THAT THE DISALLOWAN CE MADE U/S. 40(A)(IA) BE DELETED. 16. THE LD. D.R. ON THE OTHER HAND RELIED ON THE OR DER OF THE A.O. 17. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E RECORDS. BEFORE US THE ASSESSEE HAS NOT BEEN ABLE TO CONCLUSIVELY DEMO NSTRATE THAT ITS CASE FALLS UNDER THE EXCEPTIONS AS PROVIDED UNDER RULE 6 DD. IN VIEW OF THESE CIRCUMSTANCES WE ARE OF THE VIEW THAT NO INTERFEREN CE IS CALLED FOR IN THE ORDER OF THE CIT (A). THEREFORE, THIS GROUND OF APP EAL OF THE ASSESSEE IS DISMISSED. 18. THE THIRD GROUND OF APPEAL OF THE ASSESSEE RELA TES TO THE ADDITION ON ACCOUNT OF GROSS PROFIT. IT WAS NOTED BY THE A.O. T HAT IN THE PROPRIETARY CONCERN M/S. YAMUNA TRADING CO., THE GROSS PROFIT D ECLARED IN THE EARLIER YEAS WAS 10.81% AS COMPARED TO THE CURRENT YEAR OF 5.54%. IN THE CASE OF M/S. SHREEJI TRANSPORT THE COMPANY HAS SHOWN GROSS PROFIT @ 3.02% ITA NO.1441 /AHD/2010 A.YR.. 2006 -07. 6 AGAINST 3.61% DECLARED IN THE PREVIOUS YEAR. THE A .O. NOTED THAT THE ASSESSEE HAD NOT PRODUCED THE BOOKS OF ACCOUNTS, BI LLS AND VOUCHERS. HOWEVER, ON VERIFICATION OF BANK STATEMENT PRODUCED , SEVERAL PAYMENTS WERE FOUND TO BE EXCEEDING RS.20,000/-.IN THE ABSEN CE OF BOOKS OF ACCOUNTS, BILLS AND VOUCHERS THE VERACITY OF THE EX PENSES CLAIMED COULD NOT BE ESTABLISHED. THE A.O. THEREFORE, REJECTED THE BO OKS U/S. 145(3) OF THE I.T. ACT AND ESTIMATED THE GROSS PROFIT OF M/S. YAM UNA TRADING CO. AT 10% AND OF M/S. SHREEJI TRANSPORT AT 4%, THUS AN ADDITI ON OF RS.65,366/- WAS MADE IN THE ACCOUNT OF M/S. M/S. SHREEJI TRANSPOR T AND RS.3,46,578/- IN THE ACCOUNT OF M/S. YAMUNA TRADING CO. IN ALL THE A .O. ADDED RS.4,11,944/- TO TOTAL INCOME. ASSESSEE AGGRIEVED B Y THE DECISION OF A.O., CARRIED THE MATTER IN APPEAL BEFORE THE CIT (A). 19. AFTER CONSIDERING THE SUBMISSIONS OF THE A .R., CIT (A) GRANTED PARTIAL RELIEF BY OBSERVING AS UNDER:- 4.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE AUTH ORISED REPRESENTATIVE AND THE ORDER OF THE ASSESSING OFFIC ER. GROSS PROFIT RATIO CANNOT BE CONSTANT YEAR TO YEAR. AT TIMES THE RE WILL BE HIGHER GROSS PROFIT AND DEPENDING ON THE EXIGENCIES OF THE BUSINESS AT OTHER TIMES THE APPELLANT MAY HAVE EARNED LOWER GROSS PRO FIT. HOWEVER, THE REASONS FOR FALL IN GROSS PROFIT MUST BE CLEARLY BR OUGHT OUT. IN THE CASE OF THE APPELLANT HE HAS ENTERED IN A NEW BUSINESS T HAT OF TRADING IN CEMENT, WHICH WORKS ON LOW MARGINS, RESULTING IN DE CREASE OF GROSS PROFIT PERCENTAGE. HOWEVER, IT DOES NOT EXPLAIN THE DECREASE IN GROSS PROFIT FROM 10.18% TO 7.37% DECLARED BY THE APPELLA NT IN THE CURRENT YEAR ON THE SAME GOODS TRADED AS IN THE EARLIER YEA R. HENCE WHILE ACCEPTING THAT GROSS PROFIT PERCENTAGE CANNOT REMAI N CONSTANT, IN THE ABSENCE OF EXPLANATION FOR FALL IN GROSS PROFIT IN THE BUSINESS OF M/S. YAMUNA TRADING CO., IT IS HELD THAT TRUTH WOULD LIE SOMEWHERE IN BETWEEN. THEREFORE, THE ADDITION MADE BY THE A.O. O F RS.3,46,578/- IS CONFIRMED TO THE EXTENT OF 50% I.E. RS.1,73,289/- A ND THE BALANCE IS DIRECTED TO BE DELETED. NO JUSTIFICATION IS SEEN WI TH REGARD TO ITA NO.1441 /AHD/2010 A.YR.. 2006 -07. 7 ESTIMATED ADDITION IN THE CASE OF M/S. SHREEJI TRAN SPORT. THE ADDITION OF RS.65,366/- IS DIRECTED TO BE DELETED. 20. AGGRIEVED BY THE DECISION OF CIT (A) IN UPHOLDI NG THE ADDITION TO THE EXTENT OF RS.1,73,289/- THE ASSESSEE IS NOW IN APP EAL BEFORE US. BEFORE US, THE LD. A.R. SUBMITTED THAT THE ASSESSEE START ED DEALING IN CEMENT FROM THE CURRENT YEAR WHICH HAS RESULTED IN INCREAS E IN TURNOVER. HOWEVER THE MARGIN IN CEMENT BUSINESS WAS VERY LOW AS COMPA RED TO OTHER BUSINESS, RESULTING INTO OVERALL DECLINE IN GROSS P ROFIT MARGIN. FURTHER, AS THE ASSESSEE BEING NEW TO THE CEMENT BUSINESS, HAD TO OFFER CEMENT AT COMPETITIVE RATE TO PENETRATE THE MARKET WHICH ALSO RESULTED IN REDUCTION IN G.P. IN VIEW OF THESE FACTS THE A.R. URGED THAT THE ADDITION OF RS.1,73,289/- WHICH HAS BEEN SUSTAINED BY CIT (A) BE DELETED. 21. THE LD. D.R. ON THE OTHER HAND RELIED ON THE OR DER OF A.O. 22. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E RECORDS. THE FACT THAT THE ASSESSEE HAS STARTED DEALING IN CEMENT BUS INESS IN THE PRESENT ASSESSMENT YEAR AND THE TURNOVER OF THE ASSESSEE IN CREASED DUE TO IT IS AN UNDISPUTED FACT. IT IS AN ACCEPTED FACT THAT TO PEN ETRATE INTO AN ALREADY EXISTING MARKET, THE BUSINESSMEN HAS TO OFFER COMPE TITIVE RATES. THESE FACTS ARE NOT DISPUTED BY THE D.R. NOR IT HAS BROUG HT ANY MATERIAL TO CONTROVERT IT. THE LD. CIT (A) HAS GRANTED THE RELI EF TO THE EXTENT OF 50% OF NET PROFIT ESTIMATED BY A.O. ALSO ON ESTIMATION BAS IS. IN VIEW OF THESE FACTS WE ARE OF THE VIEW THAT THE ENDS OF JUSTICE SHALL B E MET BY CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS.1.50 LACS AS AGAIN ST RS.1,73,289/- SUSTAINED BY CIT(A). WE DIRECT ACCORDINGLY. THEREFO RE THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.1441 /AHD/2010 A.YR.. 2006 -07. 8 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 31- 5 - 2012. SD/- SD/- (D. K. TYAGI) (ANIL CHATURVEDI) JUDICIAL MEMBER ACC OUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-II, BARODA. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 11 - 5 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 15 / 5 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 25 - 5 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 31 - 5 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 31 - 5 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 31 - 5 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..