Shri Suresh H. Shah, Secunderabad V. ITO, Hyderabad

ITA 1499/HYD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9789 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 01-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K E SUNIL BAHU
• Assessee Lawyers: K C DEVADAS
• Keywords: Business expenditure
• Section: 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI AKBER BASHA, ACCOUNTANT MEMBER ITA NO.1499/HYD/2010 : ASSESSMENT YEAR 2006- 07 SHRI SURESH H.SHAH, SECUNDERABAD. (PAN AAACQ O733 H) VS INCOME TAX OFFICER, WARD 5(1), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.C.DEVADAS RESPONDENT BY : SHRI K.E.SUNIL BAHU O R D E R PER G.C.GUPTA, VICE PRESIDENT: THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YE AR 2006-07 IS DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME- TAX(APPEALS). 2. GROUND OF APPEAL NO.1 OF THE ASSESSEE IS AS UND ER- THE ORDER OF THE CIT(A), HYDERABAD IN CONFIRMING T HE ADDITION OF RS76,994/- BEING BUSINESS EXPENDITURE I NCURRED ON ACCOUNT OF COMMON FACILITIES SHARED BY THE APPEL LANT AND APPELLANTS WIFE IS UNSUSTAINABLE IN LAW. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FACTS OF THE CASE WERE NOT CORRECTLY APPRECIATED BY THE CIT(A). HE SUBMITTED THAT SHOP EXPENSES AND SALARY WERE SEPARA TELY DEBITED BY THE WIFE OF THE ASSESSEE TO HER PROFIT & LOSS ACCOU NT AND THEREFORE THERE IS NO JUSTIFICATION FOR MAKING ANY DISALLOWAN CE ON THIS COUNT. HE ITA NO.1499/H/2010 SHRI SURESH H.SHAH, SECUNDERABAD. 2 SUBMITTED THAT TELEPHONE EXPENSES OF RS.63,979 WERE INCURRED AND DEBITED BY THE ASSESSEE AND NO PART OF THE SAME WA S BORNE BY THE WIFE OF THE ASSESSEE, AND THAT BOTH THE ASSESSEE AN D HIS WIFE WERE OPERATING FROM THE SAME PREMISES. THE LEARNED DEPAR TMENTAL REPRESENTATIVE REFERRED TO PARA 4.1 OF THE ORDER O F THE CIT(A), WHEREIN IT HAS BEEN RECORDED BY THE CIT(A) THAT THE ASSESSEE COULD NOT EXPLAIN HOW THE RENT AND ELECTRICITY EXPENSES W ERE INCURRED ONLY BY THE ASSESSEE AND NOT BY THE WIFES BUSINESS. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT ALTHOUGH SHOP EXPENSES AND SALARIES HAVE BEEN SEPAR ATELY DEBITED BY THE WIFE OF THE ASSESSEE TO HER PROFIT & LOSS ACCOU NT. THE WIFE OF THE ASSESSEE HAS NOT INCURRED ANY EXPENSES ON ACCOUNT O F RENT, ELECTRICITY AND TELEPHONE EXPENSES, ALTHOUGH THE BUSINESS PREMI SES OF BOTH THE ASSESSEE AND HIS WIFE ARE COMMON. THE LEARNED COUNS EL FOR THE ASSESSEE HAS EXPLAINED THAT THE TURNOVER OF THE ASS ESSEES WIFE WAS VERY MEAGER AND IT WAS RS.1.09 LAKHS ONLY. CONSIDE RING THE TOTALITY OF FACTS OF THE CASE, WE CONSIDER THAT DISALLOWANCE ON THIS ACCOUNT SHALL BE RESTRICTED TO RS.38,497 BEING 10% OF THE T OTAL EXPENSES AS AGAINST 20% OF THESE EXPENSES DISALLOWED BY THE ASS ESSING OFFICER AND CONFIRMED BY THE CIT(A). ACCORDINGLY, GROUND O F APPEAL NO.1 OF THE ASSESSEE IS PARTLY ALLOWED. 5. GROUND OF APPEAL NO.2 OF THE ASSESSEE IS AS UND ER- THE ORDER OF THE CIT(A)-V HYDERABAD ERRED IN CONFI RMING THE ADDITION OF RS1,27,665/- BEING THE INTEREST PAYMENT TO APPELLANTS WIFE WHO IS ASSESSED TO INCOME TAX AND THE ENTIRE INTEREST INCOME WAS DISCLOSED BY HER IN HER TAX RET URNS. ITA NO.1499/H/2010 SHRI SURESH H.SHAH, SECUNDERABAD. 3 7. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE INTEREST PAYMENT TO ASSESSEES WIFE OF RS.1.27 LAKH S WAS DECLARED BY THE ASSESSEES WIFE AS HER INCOME AND HAS BEEN TAXE D BY THE DEPARTMENT. HE SUBMITTED THAT THE ASSESSEE HAS COM MITTED AN INADVERTENT MISTAKE AND COULD NOT DEBIT THE AMOUNT OF INTEREST PAYMENT OF RS.1.27 LAKHS MADE TO HIS WIFE IN HIS BO OKS OF ACCOUNT, ALTHOUGH THE SAME WAS CLAIMED AS DEDUCTION IN THE C OMPUTATION OF INCOME FILED BY THE ASSESSEE. 8. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A). 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT MERE NON-DEBITING OF THE EXPENSES IN THE BOOKS OF A CCOUNT OF THE ASSESSEE IS NOT DECISIVE OF THE ISSUE. HOWEVER, TH ERE IS NO EVIDENCE BEFORE US TO SHOW THAT THE ASSESSEE HAD CLAIMED THE DEDUCTION OF RS.1,27,665 AS INTEREST PAID TO HIS WIFE IN HIS COM PUTATION OF INCOME FILED BEFORE THE ASSESSING OFFICER DURING THE COURS E OF ASSESSMENT PROCEEDINGS. IN THESE FACTS OF THE CASE, WE RESTOR E THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO A LLOW THE DEDUCTION OF RS.1,27,665 AS INTEREST PAYMENT TO ASSESSEES WIFE, PROVIDED AFTER VERIFICATION BY HIM, IF IT IS FOUND THAT THE ASSESS EE HAS INDEED CLAIMED DEDUCTION THEREOF IN HIS COMPUTATION OF INCOME FILE D WITH THE DEPARTMENT. WE DIRECT ACCORDINGLY. 10. GROUND OF APPEAL NO.3 OF THE ASSESSEE IS AS U NDER- THE ORDER OF THE CIT(A)-V, HYDERABAD IN SUSTAINING A PART OF THE GROSS PROFIT ADDITION AT RS.3,26,708/- IS TOTAL LY CONTRARY TO THE FACTS AND EVIDENCE ON RECORD AND IS THEREFORE, CLEARLY UNSUSTAINABLE. ITA NO.1499/H/2010 SHRI SURESH H.SHAH, SECUNDERABAD. 4 11. THE LEARNED COUNSEL FOR THE ASSESSEE HAS CON TENDED THAT AGAINST TOTAL ADDITION OF RS.5,26,708 MADE BY THE ASSESSING OFFICER, AN AMOUNT OF RS.3,26,708 WAS SUSTAINED BY THE CIT(A ) ON ACCOUNT OF ESTIMATION OF GROSS PROFIT, BY REJECTING THE TRADIN G ACCOUNT OF THE ASSESSEE. GROUND OF APPEAL NO.3 OF THE ASSESSEE HAS BEEN DRAFTED ACCORDINGLY. HE SUBMITTED THAT THE ASSESSEE IS IN T HE BUSINESS OF SANITARY GOODS AND MOSTLY TRADING IN TILES. HE SUB MITTED THAT DUE TO DAMAGED GOODS, THE ASSESSEE HAS TO SELL ITS GOODS A T ITS PURCHASE PRICE OR EVEN FOR LOSS AND THEREFORE, THERE IS NOT VALID REASON TO ESTIMATE THE PROFIT OF THE ASSESSEE. HE FILED A COM PARATIVE G.P. POSITION OF TWO PRECEDING AND TWO SUCCEEDING ASSESS MENT YEARS TO JUSTIFY THE G.P. RATE OF 12.71% DECLARED BY THE ASS ESSEE FOR THE RELEVANT PERIOD UNDER APPEAL. THE LEARNED DEPARTMEN TAL REPRESENTATIVE HAS RELIED ON THE ORDERS OF THE ASSE SSING OFFICER AND THE CIT(A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE ASSESSING OFFICER HAS POINTED A NUMBER OF DEFEC TS IN THE ACCOUNT BOOKS OF THE ASSESSEE. THE CIT(A) HAS RECORDED THAT DURING THE APPELLATE PROCEEDINGS, THE ASSESSEE DID NOT ARGUE ON THIS ISSUE AND MERELY STATED THAT THE ASSESSING OFFICER WAS NOT CO RRECT IN MAKING THE ADDITION. THE CIT(A) HAS GIVEN A FINDING THAT THERE ARE GLARING DISCREPANCIES AND THE BOOKS OF THE ASSESSEE DO NOT REPRESENT AN ACCURATE PICTURE OF THE DAY TO DAY FINANCIAL AFFAIR S AND WERE CORRECTLY REJECTED. THERE IS NO MATERIAL BEFORE US TO DIFFER WITH THE FINDING OF THE CIT(A) ON THE ISSUE OF REJECTION OF BOOKS OF AC COUNT AND ESTIMATION OF PROFIT. THIS LEAVES US WITH THE ISSUE OF REASONABLENESS OF THE TRADING ADDITION SUSTAINED BY THE CIT(A). W E FIND THAT THE GROUND OF APPEAL NO.3 OF THE ASSESSEE HAS NOT BEEN CORRECTLY DRAFTED, ITA NO.1499/H/2010 SHRI SURESH H.SHAH, SECUNDERABAD. 5 AS THE CIT(A) HAS HELD THAT I FIND THAT ADDITION OF RS.2 LAKHS ON ACCOUNT OF SUPPRESSED GROSS PROFIT WOULD SUFFICE . THIS FINDING OF THE CIT(A) IS CLEAR THAT HE HAS SUSTAINED AN ADDITION O F RS.2 LAKHS ONLY OUT OF TOTAL TRADING ADDITION OF RS.5,26,708, MADE BY THE ASSESSING OFFICER. WE FIND THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE ASSESSEE HAS DECLARED A G.P. RATE OF 13.44% ON SALES OF RS.58.75 LAKHS, AS COMPARED TO THE G.P. RATE OF 12. 71 % ON INCREASED SALES OF RS.69.76 LAKHS DURING THE RELEVA NT PERIOD IN APPEAL BEFORE US. THERE IS AN INCREASE IN THE TURNOVER FIG URE OF THE ASSESSEE BY ABOUT RS.11 LAKHS AND THE LESSER G.P. RATE OF 12 .34% WAS ACCEPTED BY THE DEPARTMENT ON SALES OF RS.50.05 LAK HS IN THE ASSESSMENT YEAR 2004-05, IN AN ASSESSMENT MADE UNDE R S.143(1) OF THE ACT. CONSIDERING TOTALITY OF FACTS AND CIRCUMS TANCES OF THE CASE AND THE FACT THAT THERE IS AN INCREASE IN THE TURNO VER OF THE ASSESSEE DURING THE RELEVANT YEAR AS COMPARED TO THE PAST YE ARS, WE HOLD THAT ENDS OF JUSTICE SHALL BE MET, IF AN OVERALL ADDITIO N OF RS.1.25 LAKHS TO THE TRADING RESULTS OF THE ASSESSEE IS SUSTAINED, A S AGAINST ADDITION OF RS.2 LAKHS SUSTAINED BY THE CIT(A). GROUND OF APPEA L NO.3 OF THE ASSESSEE IS PARTLY ALLOWED. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE COURT ON 11.3.2011 SD/- SD/- (AKBER BASHA) ( G.C. G UPTA) ACCOUNTANT MEMBER VICE PRESIDENT DATED THE 11 TH MARCH, 2011 COPY FORWARDED TO: 1. SHRI SURESH H.SHAH, C/O. SEKHAR & CO., CHARTERED ACCOUNTANTS, 133/4, R.P.ROAD, SECUNDERABAD-500 003. ITA NO.1499/H/2010 SHRI SURESH H.SHAH, SECUNDERABAD. 6 2. INCOME TAX OFFICER, WARD-5(1), HYDERABAD 3. CIT (A) - V , HYDERABAD. 4. COMMISSIONER OF INCOME - TAX IV , HYDERABAD 5. THE D.R., ITAT, HYDERABAD. B.V.S.