DCIT, Chandigarh V. M/s Bajaj Travels, Chandigarh

ITA 154/CHANDI/2014

• Counselvise Citation: 15421514 RSA 2014
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 07-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: HARRY RIKHY
• Keywords: Gross profit estimation; Rejection of books of accounts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.154/CHD/2014 (ASSESSMENT YEAR : 2010-11) THE D.C.I.T., VS. BAJAJ TRAVELS, CIRCLE (1), SCO 14-15, CHANDIGARH. SECTOR 9, CHANDIGARH. PAN: AAACB9759J (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH RESPONDENT BY : SHRI HARRY RIKHY DATE OF HEARING : 21.09.2015 DATE OF PRONOUNCEMENT : 07.10.2015 O R D E R PER RANO JAIN, A.M . : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH DATED 14.11.2013 FOR ASSESSME NT YEAR 2010-11, RAISING THE FOLLOWING GROUNDS OF APPE AL : 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS & CO NTRARY TO FACTS & LAW. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND LAW IN DELETIN G THE ADDITION OF RS. 5,38,662/- MADE U/S 36(L)(III) OF T HE ACT SINCE THE INTEREST FORGONE ON LOANS AND ADVANCES I S TO 2 BE DISALLOWED BECAUSE THE REQUIREMENT OF LOAN TO TH AT EXTENT IS DUE TO THIS LOAN AND ADVANCE AS THE ASSES SEE HAS FAILED TO PROVE THE BUSINESS EXPEDIENCY OF THESE LOANS AND ADVANCES. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND LAW IN DELETIN G THE ADDITION OF RS. 13,95,007/- SINCE THE ASSESSEE HAS FAILED TO PROVE THE REASONS OF DECLINE IN NP RATE. 4. THE APPELLATE CRAVES TO ADD OR AMEND ANY GROUND OF GROUNDS OF APPEAL BEFORE THE APPEAL IS' HEARD OR DISPOSED OF. 5. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF A.O. MAY BE RESTORED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE HAD DEBITED TOTAL INTEREST OF RS.12,26,319/- TO THE PROFIT & LOSS ACCOUNT. IT WAS NOTICED BY THE ASSESSING OFFI CER THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCES AMOUN TING TO RS.1,34,56,600/- TO M/S UPPAL HOUSING (P) LTD. A ND RS.2,35,00,000/- TO M/S GLOBAL AIRWAYS & RESORTS (P ) LTD. ON QUESTIONING ABOUT THE BUSINESS EXPEDIENCY OF THE SE ADVANCES, AS REGARDS ADVANCE GIVEN TO M/S GLOBAL AI RWAYS & RESORTS (P) LTD., THE SUBMISSION OF THE ASSESSEE WAS THAT IT WAS FOR PURCHASE OF SOME PORTION OF PREMISE S OF IMMOVABLE PROPERTY AND WAS AN OLD BALANCE. REGARDI NG THE ADVANCE TO M/S UPPAL HOUSING (P) LTD., IT WAS SUBMITTED THAT THIS WAS ALSO AN OLD BALANCE FOR PUR CHASE OF PROPERTY TO BE USED FOR BUSINESS PURPOSES. THE ASSESSING OFFICER DID NOT FIND HIMSELF IN AGREEMENT WITH THE SUBMISSIONS OF THE ASSESSEE AND MADE ADDITION O F AN AMOUNT OF RS.12,26,319/- UNDER SECTION 36(1)(III) O F THE 3 INCOME TAX ACT, 1961 (IN SHORT THE ACT), AS THE A SSESSEE COULD NOT PROVE THE BUSINESS EXPEDIENCY OF INTEREST FREE ADVANCES. 3 BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND IT WAS SUBMITTED THAT THE ADVANCES WERE MADE FO R BUSINESS PURPOSES ONLY AND AS THE PROJECT WAS DELAY ED, THE ASSESSEE COULD NOT GET THE POSSESSION OF THE PROPER TY. IN ADDITION TO THESE, IT WAS ALSO ARGUED THAT THE ASSE SSEE HAD SUFFICIENT FUNDS OF ITS OWN AND OUT OF TOTAL INTERE ST OF RS.12,26,319/-, INTEREST OF RS.5,38,662/- PERTAINS TO CAR LOANS, WHICH WAS DIRECTLY PAID TO THE BANK. THE LE ARNED CIT (APPEALS) AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE FOUND THAT THE ASSESSING OFFICER WAS RIGHT IN MAKING DISALLOWANCE UNDER SECTION 36(1)(II) OF THE ACT AS THE ASSESSEE COULD NOT SUBSTANTIATE THAT THE FUNDS WERE USED FOR BUSINESS PURPOSES. HOWEVER, WITH REGARD TO THE ARGUMENT OF THE ASSESSEE THAT THE INTEREST OF RS.5,38,662/- ON CAR LOAN WAS DIRECTLY PAID TO THE BANK AND SO NO DISALLOWANCE OF THIS INTEREST BE MADE. HE FOUND IT QUITE PLAUSIBLE AND RESTRICTED THE DISALLOWANCE OF INTEREST TO RS.6,87,657/- (RS.1 2,26,319/- - RS.5,38,662/-). 4. THE DEPARTMENT HAS COME UP IN APPEAL AGAINST TH E SAID FINDING OF THE LEARNED CIT (APPEALS). 4 5. THE LEARNED D.R. RELIED UPON THE ORDER OF THE ASSESSING OFFICER, WHILE THE LEARNED COUNSEL FOR TH E ASSESSEE RELIED UPON THE ORDER OF THE LEARNED CIT (APPEALS). 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. AFTER HEARING BOTH THE PARTIES, WE DO NOT FIND ANY INFIRMITY IN T HE ORDER OF THE LEARNED CIT (APPEALS) AS IT IS QUITE EVIDENT TH AT THE INTEREST ON CAR LOAN RAISED BY THE ASSESSEE DURING THE YEAR IS DIRECTLY PAID TO THE BANK. THIS PAYMENT OF INTERE ST ON CAR LOAN AMOUNTING TO RS.5,38,662/- HAS A DIRECT NEXUS WITH THE LOAN TAKEN FOR THE PURPOSES OF CAR. THEREFORE, NO PART OF THIS INTEREST AMOUNT CAN BE DISALLOWED UNDER SECTION 36( 1)(III) OF THE ACT. THE LEARNED CIT (APPEALS) HAS GIVEN RELIE F TO THE ASSESSEE TO THIS EXTENT ONLY AND THE REMAINING PORT ION OF DISALLOWANCE HAS BEEN UPHELD BY HIM. THE ASSESSEE HAS NOT COME UP IN APPEAL BEFORE US AGAINST THE DISALLOWANC E SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX . IN THIS VIEW, WE DO NOT FIND ANY INFIRMITY IN THE FIND INGS GIVEN BY THE LEARNED CIT (APPEALS) AND UPHOLD THE FINDINGS G IVEN BY HIM. THE GROUND OF APPEAL NO.2 RAISED BY THE REVE NUE IS DISMISSED. 7. THE GROUND NO.3 OF APPEAL OF THE REVENUE IS WIT H REGARD TO ADDITION ON ACCOUNT OF NET PROFIT. 8. THE FACTS OF THE CASE ARE THAT A SURVEY WAS CAR RIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE DURING THE YEAR 5 WHERE THE ASSESSEE DISCLOSED AN ADDITIONAL INCOME O F RS.1.30 CRORES TO COVER UP THE DISCREPANCIES IN THE BOOKS O F ACCOUNT. THE ASSESSING OFFICER NOTICED THAT THE NET PROFIT R ATE WAS 0.28% EXCLUDING THE ADDITIONAL INCOME DECLARED DURI NG THE COURSE OF SURVEY IN THIS YEAR AS AGAINST 0.37% IN T HE PRECEDING YEAR. THE EXPLANATION OF THE ASSESSEE W AS THAT THE AIRLINES HAD REDUCED THE COMMISSION PERCENTAGE AND SOME AIRLINES DID NOT PAY COMMISSION AT ALL. IT WAS ALS O SUBMITTED THAT DUE TO ONLINE BOOKING BY THE CUSTOMERS, THERE WAS COMPETITION AND TO SURVIVE IN THE TRADE, THE MARGIN LEFT WITH THE ASSESSEE WAS VERY LITTLE. THE ASSESSING OFFI CER DID NOT FIND THE EXPLANATION GIVEN BY THE ASSESSEE PLAUSIBL E AND DID NOT ACCEPT THE DECREASE IN THE NET PROFIT. THE AD DITION OF RS.13,95,000/- BEING NET PROFIT OF 0.09%, THE DIFFE RENCE BETWEEN ASSESSMENT YEARS 2009-10 AND 2010-11 WAS MA DE. 9. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSIN G OFFICER AND SUBMITTED THAT THE TREND IN NET PROFIT RATE HAS NOT ALWAYS BEEN PROGRESSIVE. THE LEARNED CIT (APPEALS) FOUND HIMSELF IN AGREEMENT WITH THE CONTENTION OF THE ASSESSEE THAT THERE IS TOUGH COMPETITION TO SURVIVE IN THIS TRADE BECAUSE THE CUSTOMERS ARE BUYING TICKETS ONLINE, WHICH HAS LED TO DROP IN MARGINS. FURTHER, POINTING OUT THAT SINCE THE ASSE SSING OFFICER HAS NOT GIVEN ANY SPECIFIC INSTANCE OF ANY DEFECT IN THE BOOKS OF ACCOUNT AND HAVING NOT REJECTED THE BOOKS OF ACCOUNT, HE COULD NOT HAVE DISTURBED THE NET PROFIT RATE 6 DECLARED BY THE ASSESSEE. IN THIS VIEW, ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED BY THE LEARNED CIT (A PPEALS). 10. THE LEARNED D.R. WHILE ARGUING BEFORE US RELIE D UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED TH AT THE NET PROFIT RATE OF THE ASSESSEE HAVING DECLARED FROM 0. 37% IN THE LAST YEAR TO 0.28% IN THIS YEAR, THE ADDITION MADE BY THE ASSESSING OFFICER IS CALLED FOR. 11. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UP ON THE ORDER OF THE LEARNED CIT (APPEALS). 12. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF B OTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE L EARNED CIT (APPEALS) IN THIS CASE HAS GIVEN A VERY APT FINDING IN HIS ORDER AT PAGE 5 IN PARAS 5.3 AND 5.3.1, WHICH READS AS UN DER : 5.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. COU NSEL. THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF TRAVEL AGENCY AND ITS MAIN SOURCE OF INCOME IS COMMISSION INCOME RECEIVED FROM VARIOUS AIRLINES ON TICKET BOOKINGS. THE PERCENTAGE OF COMMISSION VARIES FROM YEAR TO YEAR. IT HAS BEEN EXPLAINED BY T HE APPELLANT THAT THE AIRLINES HAD REDUCED THE COMMISSION RATE D URING THE YEAR UNDER CONSIDERATION AND SOME OF THE AIRLINES DID NOT EVEN PAY THE COMMISSION. I AM IN AGREEMENT WITH THE CONTEN TION OF THE APPELLANT THAT THERE IS TOUGH COMPETITION TO SURVIVE IN THIS TRADE BECAUSE THE CUSTOMERS ARE BUYING TICKETS ONLINE, WHICH HAS LED TO DROP IN MARGINS. THE LD. COUNSEL HAS ALSO SUBMIT TED THAT ADMINISTRATIVE EXPENSES HAVE TREMENDOUSLY INCR EASED BY APPROXIMATELY RS. 67,00,000/-. ALL THESE FACTORS HA VE OBVIOUSLY LED TO FALL IN N.P. RATE IN COMPARISON TO THE EARLIER YEARS. 7 5.3.1 THE REASON GIVEN BY THE ASSESSING OFFICER F OR MAKING ADDITION IS THAT THERE WAS NO CHANGE IN NATURE OF B USINESS AND THE TURNOVER HAD ALSO INCREASED. IT IS SEEN THAT THE ASSESSING OFFICER HAS NOT PINPOINTED ANY DEFECT IN THE BOOKS OF ACCOUNTS AND HAS ALSO NOT REJECTED THE BOOKS OF ACCOUNTS BEF ORE APPLYING THE RATE. THE ACCOUNTS OF THE APPELLANT ARE MAINTAI NED IN CONFORMITY WITH THE PAST HISTORY AND IN THE ABSENCE O F ANY SPECIFIC DEFECT OR IRREGULARITY, THERE WAS NO GROUN D TO DISPUTE THE CORRECTNESS OF TRADING RESULTS AND PROFIT & LOS S ACCOUNT. THE LOW GROSS PROFIT OR NET PROFIT MAY BE A GROUND TO C ARRY OUT A DETAILED AND THOROUGH INVESTIGATION/ VERIFICATION, BUT IT CANNOT, ON STANDALONE BASIS, BE A GROUND FOR ENHANCING THE N .P. RATE. IT HAS BEEN OBSERVED BY HON'BLE PUNJAB & HARYANA HIG H COURT IN THE CASE OF M/S DUA AND ASSOCIATES (P) LTD. (316 ITR 224) THAT THE BOOKS OF ACCOUNTS OF AN ASSESSEE CANNOT BE REJE CTED UNLESS THE ASSESSING OFFICER BRINGS ON RECORD DEFEC TS IN THE BOOKS OF ACCOUNTS. BY APPLYING THE RATIO OF THIS JUDGEMENT, IT IS HELD THAT SINCE THE ASSESSING OFFICER HAD NOT BROUGHT ANY MATERIAL ON RECORD TO POINT OUT DEFECTS IN THE BOOKS OF ACCOUNTS, HE COULD NOT HAVE DISTURBED THE N.P. RATE DECLARED BY THE APPELLANT. IN VIEW OF THIS DISCUSSI ON, THE ADDITION MADE ON THIS ACCOUNT IS DELETED. GROUND OF APPEAL NO. 4 IS ALLOWED. 13. IT IS QUITE A KNOWN FACT THAT THE CUSTOMERS HA VE STARTED BUYING TICKETS ONLINE WHICH IS ONE OF THE R EASONS FOR DROP IN MARGINS EARNED BY THE TRAVEL AGENCIES. THE ASSESSING OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNT OF TH E ASSESSEE WHICH WERE BEING CONSTANTLY MADE ON THE BASIS OF SA ME CONCEPT. WITHOUT PINPOINTING ANY SPECIFIC INSTANCE OF OVER CHARGING OF EXPENSES OR NON DISCLOSURE OF CERTAIN INCOMES, THE ASSESSING OFFICER CANNOT ARBITRARILY INCREASE T HE AMOUNT OF NET PROFIT SHOWN BY THE ASSESSEE JUST ON THE BAS IS THAT THERE IS A DECLINE IN NET PROFIT OF THE ASSESSEE DU RING THE YEAR 8 IN COMPARISON TO THE LAST YEAR. WE ALSO SEE THAT THE NET PROFIT IN THE LAST YEAR WAS 0.37% WHICH IS DECLINED TO 0.28% DURING THE YEAR. SUCH AN INSIGNIFICANT DROP IN THE NET PROFIT IS NOT VERY IMPROBABLE IN THE GIVEN SET OF FACTS AN D CIRCUMSTANCES. THEREFORE, WE DO NOT FIND ANY INFIR MITY IN THE ORDER OF THE LEARNED CIT (APPEALS). THE GROUND OF APPEAL IS DECIDED AGAINST THE DEPARTMENT. 14. THE GROUND NOS.4 AND 5 ARE GENERAL, THEREFORE, NEED NO ADJUDICATION. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 7 TH DAY OF OCTOBER, 2015. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACOUNTANT MEMBER DATED : 7 TH OCTOBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 9