THE ACIT., CIRCLE - 1(1), Visakhapatnam V. Sri Pasumarthy Ramamurthy, Visakhapatnam

ITA 155/VIZ/2013

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9919 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-01-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: T. SATYANADHAM
• Keywords: Business income
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 142(1); 143(1); 143(2); 44AB

Judgement Text

ITA NOS.143 & 155/VIZAG/2013 SRI PASUMARTHY RAMAMURTHY, VISAKHAPATNAM 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.143/VIZAG/2013 ( / ASSESSMENT YEAR: 2009-10) PASUMARTHY RAMA MURTHY, VISAKHAPATNAM VS. DCIT, CIRCLE - 1(1), VISAKHAPATNAM [PAN: ADYPP7513N ] ( % / APPELLANT) ( &'% / RESPONDENT) ./I.T.A.NO.155/VIZAG/2013 ( / ASSESSMENT YEAR: 2009-10) ACIT, CIRCLE - 1(1), VISAKHAPATNAM VS. PASUMARTHY RAMA MURTHY, VISAKHAPATNAM ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI C. SUBRAHMANYAM,AR / RESPONDENT BY : SHRI T. SATYANADHAM, DR / DATE OF HEARING : 12.08.2016 / DATE OF PRONOUNCEMENT : 26.08.2016 ITA NOS.143 & 155/VIZAG/2013 SRI PASUMARTHY RAMAMURTHY, VISAKHAPATNAM 2 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THESE CROSS APPEALS FILED BY THE ASSESSEE, AS WELL AS THE REVENUE ARE DIRECTED AGAINST COMMON ORDER OF THE CIT(A), VI SAKHAPATNAM DATED 29.1.2013 AND IT PERTAINS TO THE ASSESSMENT YEAR 20 09-10. SINCE, THE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, THEY ARE HEARD TOGETHER AND DISPOSED OFF, BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL DERIVING INCOME FROM COMMISSION FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10 ON 15.2.2010 DECLARING TOTA L INCOME OF RS.15,02,568/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED AS THE ACT). SUBSE QUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICES U/S 143(2) 142(1) OF THE ACT WERE ISSUED. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSEE WAS ASKED TO PRODUCE BOOKS OF ACCOUNTS AND BILLS & VOUCHERS IN SUPPORT OF RETURN OF INCOME FILED FOR THE YEAR. SINCE THE ASSESSEE COULD NOT PRODUCE BOOKS OF ACCOUNTS AND OTHER DETAI LS, THE A.O. ISSUED A SHOW CAUSE NOTICE AND ASKED TO EXPLAIN WHY EXPENDIT URE CLAIMED SHALL NOT BE DISALLOWED. IN RESPONSE TO SHOW CAUSE NOTICE , THE ASSESSEE SUBMITTED THAT IT HAS MAINTAINED BOOKS OF ACCOUNTS AND NECESSARY ITA NOS.143 & 155/VIZAG/2013 SRI PASUMARTHY RAMAMURTHY, VISAKHAPATNAM 3 VOUCHERS IN SUPPORT OF EXPENDITURE CLAIMED. IT WAS FURTHER SUBMITTED THAT BOOKS OF ACCOUNTS ARE AUDITED BY AN AUDITOR U/ S 44AB OF THE ACT AND NO ADVERSE COMMENTS ARE MADE ABOUT BOOKS OF ACC OUNTS. THE ASSESSEE FURTHER SUBMITTED THAT HE IS WORKING AS CO NSULTANT ON COMMISSION BASIS FOR M/S RMP INFOTECH, A DIRECT MAR KETING COMPANY DEALING IN RANGE OF CONSUMER PRODUCTS LIKE WATER PU RIFICATION, SOLAR SYSTEM, LAPTOP ETC. BECAUSE OF THE NATURE OF WORK, THE EMPLOYEES ARE NOT ON PERMANENT BASIS AND ONLY SELF-MADE VOUCHERS WERE TAKEN FOR THE EXPENSES INCURRED TOWARDS SALARY. SIMILARLY, TRAINI NG AND OTHER EXPENSES WERE INCURRED IN RELATION TO TRAINING OF EMPLOYEES AND SUPPORTED BY SELF- MADE VOUCHERS. THE ASSESSEE FURTHER SUBMITTED THAT TO EARN ANY INCOME RELATED EXPENDITURE NEEDS TO BE INCURRED. WITHOUT IN CURRING ANY EXPENDITURE INCOME CANNOT BE EARNED. THEREFORE, REQ UESTED TO ALLOW EXPENDITURE AS CLAIMED IN THE PROFIT & LOSS ACCOUNT . 3. THE A.O. AFTER CONSIDERING THE EXPLANATION OF TH E ASSESSEE, HELD THAT THE ASSESSEE HAS FAILED TO PROVE EXPENDITURE W ITH SUPPORTING BILLS & VOUCHERS. THE A.O., FURTHER, OBSERVED THAT DESPITE REPEATED OPPORTUNITIES, THE ASSESSEE FAILED TO FURNISH BILLS & VOUCHERS IN RESPECT OF SALARY AND OTHER EXPENSES. WITH THESE OBSERVATI ONS REJECTED BOOKS OF ITA NOS.143 & 155/VIZAG/2013 SRI PASUMARTHY RAMAMURTHY, VISAKHAPATNAM 4 ACCOUNTS U/S 145 OF THE ACT AND TREATED ENTIRE COMM ISSION INCOME OF RS.1,23,46,952/- AS INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE A SSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. THE ASSESSEE FURTHER SUBMITTED THAT THE A.O. FAILED TO TAKE NOTE THAT IN ANY BUSIN ESS, THE REVENUE GENERATION AND EXPENDITURE ARE SYNONYMOUS TO EACH O THER. WHEN SUCH BEING THE CASE, THE A.O. IS ERRED IN DISALLOWING EN TIRE EXPENDITURE INCURRED TO EARN INCOME. THE ASSESSEE FURTHER SUBM ITTED THAT IT IS A SETTLED LAW THAT WHEN BOOKS OF ACCOUNTS WERE REJECT ED, THE INCOME NEEDS TO BE ESTIMATED, WHEN SUCH IS THE LEGAL POSIT ION, THE LD. A.O. OUGHT TO HAVE ESTIMATED INCOME BY TAKING DUE NOTE O F EXPENDITURE PART, ESPECIALLY WHEN IT IS KNOWN FACT THAT IN ANY BUSINE SS INCOME GETS GENERATED ONLY BY INCURRING EXPENDITURE. THE CIT(A) AFTER CONSIDERING THE EXPLANATIONS FURNISHED BY THE ASSESSEE, HELD TH AT THE ASSESSEE FAILED TO PRODUCE EVIDENCES IN SUPPORT OF EXPENDITURE INCU RRED PARTICULARLY FOR STAFF SALARY, TRAINING EXPENSES, ETC. THE CIT(A), FURTHER, HELD THAT IT HAS COME ON RECORDS THAT THE ASSESSEE HAS NOT MAINTAINE D BOOKS OF ACCOUNTS AND BILLS & VOUCHERS FOR MAJOR EXPENSES. T HOUGH IT WAS CLAIMED IN THE REPLY TO SHOW CAUSE NOTICE THAT SELF -MADE VOUCHERS WERE ITA NOS.143 & 155/VIZAG/2013 SRI PASUMARTHY RAMAMURTHY, VISAKHAPATNAM 5 MAINTAINED, THIS WAS NOT PRODUCED. THE CIT(A) FURTH ER OBSERVED THAT THERE IS A MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE ENTIRE RECEIPTS CANNOT BE TREATED AS INCOME, BECAUSE TO EARN INCOME THE ASSESSEE NECESSARILY TO INCUR CERTAIN EXPENDITURE. WITH THESE OBSERVATIONS ESTIMATED INCOME OF 50% ON GROSS RECEIPTS OF RS.1,2 3,46,952/-. AGGRIEVED BY THE CIT(A) ORDER, THE ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US. 5. THE LD. A.R. FOR THE ASSESSEE, SUBMITTED THAT TH E LD. CIT(A) HAVING OBSERVED THAT THE A.O. IS NOT CORRECT IN DIS ALLOWING TOTAL EXPENDITURE CLAIMED IN THE P&L ACCOUNT, OUGHT NOT T O HAVE ESTIMATED NET PROFIT OF 50% ON GROSS RECEIPTS. THE A.R. FURT HER SUBMITTED THAT REVENUE GENERATION AND EXPENDITURE ARE SYNONYMOUS T O EACH OTHER, WHEN SUCH BEING THE CASE, THE A.O. FAILED TO APPREC IATE THE FACT THAT THE ASSESSEE NEEDS TO INCUR CERTAIN EXPENDITURE TO EARN INCOME. THE A.R. FURTHER SUBMITTED THAT THE CIT(A) WHILE ESTIMATING THE INCOME HAS ESTIMATED NET PROFIT OF 50% WHICH IS HIGHER SIDE, T HEREFORE, REQUESTED TO SCALE DOWN THE ESTIMATION OF NET PROFIT TO 25%. 6. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT T HE LD. CIT(A) IS NOT JUSTIFIED IN ESTIMATING 50% OF THE TOTAL RECEIP TS AS ASSESSEES INCOME FROM BUSINESS, INSTEAD OF UPHOLDING THE ASSESSMENT OF ENTIRE ITA NOS.143 & 155/VIZAG/2013 SRI PASUMARTHY RAMAMURTHY, VISAKHAPATNAM 6 COMMISSION RECEIPTS MADE BY THE A.O. THE D.R. FURT HER SUBMITTED THAT THE CIT(A) OUGHT TO HAVE UPHELD THE FINDING OF THE A.O. THAT THE ASSESSEE IS A SINGLE COMMISSION AGENT OPERATING IND IVIDUALLY AND THEREFORE, NO EXPENSES U/S 30 TO 37 OF THE ACT ARE ALLOWABLE. THE D.R. FURTHER ARGUED THAT THE ASSESSEE IS NOT CONDUCTING BUSINESS IN A PREMISES AND EXPENDITURE INCURRED UNDER VARIOUS HEA DS IS NOT INCIDENTAL TO THE CONDUCT OF HIS BUSINESS. THEREFORE, THE ASSE SSMENT ORDER PASSED BY THE A.O. SHOULD BE UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE A.O. REJECTED BOOKS OF ACCOUNTS U/S 145 OF THE ACT AND ASSESSED ENTIRE COMMISSION RECEIPTS AS INCOME OF THE ASSESSEE. THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS FAILED TO SUBSTANTIAT E EXPENDITURE WITH NECESSARY BILLS & VOUCHERS. IT IS THE CONTENTION O F THE ASSESSEE THAT IT HAS MAINTAINED BOOKS OF ACCOUNTS ALONG WITH BILLS A ND VOUCHERS. THE BOOKS OF ACCOUNTS ARE AUDITED UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT AND THE AUDITOR HAS NOT POINTED OUT ANY DIS CREPANCIES IN THE BOOKS OF ACCOUNTS. THE ASSESSEE FURTHER CONTENDED THAT EXPENDITURE DEBITED IN THE P&L ACCOUNT ARE INCURRED IN CONNECTI ON WITH THE BUSINESS AND SUPPORTED BY SELF-MADE VOUCHERS. IT IS FURTHER CONTENDED THAT THE ITA NOS.143 & 155/VIZAG/2013 SRI PASUMARTHY RAMAMURTHY, VISAKHAPATNAM 7 A.O. WAS ERRED IN TREATING ENTIRE COMMISSION RECEIP TS AS BUSINESS INCOME, AS GENERATION OF REVENUE AND EXPENDITURE AR E SYNONYMOUS TO EACH OTHER, WHEN SUCH BEING THE CASE WITHOUT INCURR ING EXPENDITURE REVENUE CANNOT BE GENERATED. WE FIND FORCE IN THE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT REVENUE AND EXPENDITUR E ARE TWO SIDES OF A COIN AND WITHOUT EXPENDITURE REVENUE CANNOT BE EARN ED, THEREFORE, THE A.O. WAS NOT CORRECT IN DISALLOWING ENTIRE EXPENDIT URE. WE FURTHER OBSERVED THAT THE A.O. HAS REJECTED BOOKS OF ACCOUN TS. WHEN THE BOOKS OF ACCOUNTS ARE REJECTED, THE BEST COURSE AVAILABLE TO THE A.O. IS TO ESTIMATE THE INCOME FROM BUSINESS BASED ON CERTAIN PARAMETERS, I.E. PAST HISTORY OF THE ASSESSEE OR COMPARABLE CASES OF SIMILAR BUSINESS. IN THIS CASE, ADMITTEDLY, THE ASSESSEE FAILED TO PRODU CE BOOKS OF ACCOUNTS WITH NECESSARY BILLS AND VOUCHERS. THOUGH, ASSESSEE COULD NOT PRODUCE BOOKS OF ACCOUNTS AND SUPPORTING VOUCHERS FOR EXPEN DITURE DEBITED IN THE P&L ACCOUNT, A REASONABLE EXPENDITURE TO EARN T HE INCOME CANNOT BE RULED OUT. THE CIT(A) AFTER CONSIDERING THE RELE VANT DETAILS, ESTIMATED NET PROFIT OF 50% ON GROSS RECEIPTS. THE FACTS REMAIN UNCHANGED EVEN BEFORE US. THE ASSESSEE AND THE REVE NUE FAILED TO PROVE THEIR CASE BY FURNISHING NECESSARY EVIDENCES TO PROVE THAT THE FINDINGS OF FACT RECORDED BY THE CIT(A) IS INCORREC T THEREFORE, WE DO NOT SEE ANY REASONS TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A). ITA NOS.143 & 155/VIZAG/2013 SRI PASUMARTHY RAMAMURTHY, VISAKHAPATNAM 8 HENCE, WE INCLINED TO UPHOLD THE CIT(A) ORDER AND R EJECT THE APPEAL FILED BY THE ASSESSEE AS WELL AS THE REVENUE. 8. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AND REVENUE ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 26 TH AUG16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 26.08.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT SHRI P. RAMA MURTHY, C/O SRI SUB RAHMANYAM, CHARTERED ACCOUNTANT, 102, LAKSHMI APTS., FACOR LAY OUT, WALTAIR UPLANDS, VISAKHAPATNAM 2. / THE RESPONDENT THE DCIT, CIRCLE-1(1), VISAKHAP ATNAM 3. / THE RESPONDENT THE ACIT, CIRCLE-1(1), VISAKHAP ATNAM 4. + / THE CIT-1, VISAKHAPATNAM 5. + ( ) / THE CIT (A), VISAKHAPATNAM 6. # . , . , # / DR, ITAT, VISAKHAPATNAM 7 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM