Inderjeet Singh , Hyderabad V. Asst.Commissioner of Income Tax, Circle-4(1), Hyderabad

ITA 1655/Hyd/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0847 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 17-12-2019
• Assessment Year: 2005-2006
• Appeal Filed On: 27-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ESTHER N HANGHAL
• Assessee Lawyers: P MURALI MOHANA RAO
• Keywords: Income from undisclosed sources; Bad and doubtful debts; Set aside
• Section: 143(3); 133A; 153A; 201

Judgement Text

IN THE INCOME TAX A PPELLATE TRIBUNAL HYDERABAD BENCH SMC ', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER I TA NO S . 1653, 1654 & 1655/HYD/2017 AND 1671 & 1672 / HYD/201 7 ASSESSMENT YEAR S : 2003 - 04, 2004 - 05, 2005 - 06, 200 7 - 08 & 20 0 8 - 09 INDERJEET SINGH , HYDERABAD. PAN A GQPS 2107N VS. ASST. COMMISSIONER OF INCOME - TAX, CIRCLE 4(1), HYDERABAD. A PPELLANT RESPONDENT ASSESSEE BY: S H RI P. MURALI MOHANA RAO REVENUE BY: S MT. ESTHER N HANGHAL DATE OF HEARING: 1 7 / 12 / 201 9 DATE OF PRONOUNCEMENT: 17 / 12 /201 9 O R D E R ALL OF THESE APPEALS ARE FILED BY THE ASSESSEE FOR THE AYS 2003 - 04 TO 2005 - 06 & 2007 - 08 & 2008 - 09. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF AUTO FINANCE AND BROKERAGE. A SURVEY OPERATION U/S 133A WAS INITIATED ON 29/11/20 07 AND THE SAME WAS CONVERTED INTO SEARCH. IN RESPONSE TO THE NOTICE ISSUED U/S 153A, THE ASSESSEE FILED HIS RETURN S OF INCOME FROM THE AYS 2002 - 03 TO 2008 - 09 ON 30/07/2009. THE ASSESSMENTS WERE COMPLETED UNDER SECTION 153A RWS 143(3) OF THE IT ACT BY MAKI NG ADDITIONS TOWARDS AUTO FINANCE, UNEXPLAINED CASH AND DISALLOWANCE OF EXPENSES ON COMMISSION INCOME. FURTHER, THE AO ALSO OBSERVED THAT THERE WAS THE INCOME ON AUTO FINANCE , WHICH INCLUDED UNDISCLOSED INTEREST INCOME @ 24% ON ANNUAL TURNOVER OF AUTO FIN ANCE AND FRESH UNEXPLAINED ADDITIONAL ADVANCE S WER E ALSO MADE DURING THE YEAR WHICH I.T.A. NO S . 1653/H/17 AND OTHERS INDERJEET SINGH, HYD. 2 WERE TO BE BROUGHT TO TAX. THE AO DISALLOWED THE EXPENDITURE ON COMMISSION INCOME BASED ON THE INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SURVEY AND SEARCH OPERATION AND ACCORDINGLY, THE ASSESSMENT PROCEEDINGS WERE COMPLETED. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT(A) AGAINST DISALLOWANCE OF EXPENDITURE ON COMMISSION INCOME. THE CIT(A) CONFIRMED THE ADDITION AND THE ASSESSEE FI LED FURTHER APPEALS TO ITAT. 4. THE ITAT VIDE ITS ORDER DATED 28/07/2011 , ESTIMATED THE NET INTEREST INCOME AT 1% PER MONTH INSTEAD OF 2% PER MONTH CONSIDERED BY THE AO ON CUMULATIVE ADVANCES AND ACCORDINGLY COMPUTED MONTH - WISE INTEREST BY CONSIDERING THE ADVANCES GIVEN AND EMI RECEIVED AS REPAYMENT. THE TRIBUNAL FURTHER OBSERVED THAT THE INCOME EARNED WHICH IS ALREADY SUBJECTED TO TAX IS TO BE CONSIDERED FOR REINVESTM ENT AND ACCORDINGLY DUE DEDUCTION SHOULD BE ALLOWED. THE ITAT ALSO DIRECTED THE AO TO CONSIDER 30% OF THE ADVANCES AS WELL AS INTEREST AS BAD DEBTS AND DIRECTED THE AO TO REDETERMINE THE TAXABLE INCOME FROM AUTO FINANCE. 4.1 ACCORDINGLY, IN THE CONSEQUEN TIAL PROCEEDINGS GIVING EFFECT TO ITAT ORDER, AO REDUCED BAD DEBTS @ 30% O F UNEXPLAINED ADVANCES , BUT DID NOT ALLOW 30% O F THE INTEREST INCOME AS BAD DEBTS AND ALSO DID NOT ALLOW THE TELESCOPING OF THE DISALLOWANCES AS SOURCES FOR MAKING ADVANCES IN THE N EXT AYS. 5. AGGRIEVED, THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE THE ITAT. I.T.A. NO S . 1653/H/17 AND OTHERS INDERJEET SINGH, HYD. 3 6. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO AND THE CIT(A) HAVE FAILED TO FOLLOW THE DIRECTIONS OF ITAT AND, THEREFORE, AO SHOULD BE DIRECTED TO ALLOW 30% OF BAD DEBTS BOTH FROM GROSS ADVANCES AS WELL AS INTEREST INCOME IN ACCORDANCE WITH THE DI RECTIONS OF ITAT. HE ALSO PRAYED THAT THE AO SHOULD BE DIRECTED TO TELESCOPE THE DISALLOWED EXPENDITURE ON COMMISSION INCOME AS CASH AVAILABLE WITH THE ASSESSEE FOR GIVING ADVANCES FOR THE SUBSEQUENT FINANCIAL YEAR S . 7. THE LD. DR, HOWEVER, SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 8. AFTER HEARING BOTH THE PARTIES AND HAVING CONSIDERED THE MATERIAL ON RECORD, I FIND THAT THE TRIBUNAL VIDE PARA 15 & 16 OF ITS ORDER HAS VERY CLEARLY DIRECTED AS UNDER: 15. W E HAVE CONSIDERED THE NET INTEREST INCOME AT 1 % PER MONTH INSTEAD OF 2% PER MONTH ADOPTED BY THE ASSESSING OFFICER SINCE THE AUTO FINANCE IS A VERY RISKY VENTURE AND THE ASSESSEE HAS TO DEAL WITH LOWER STRATA OF SOCIETY AND THE VOLUME OF BAD DEBTS IS VERY HIGH WHICH WAS NOT CONSIDERED BY THE ASSESSING OFFICER. SIMILARLY, THE ADDITIONAL UNEXPLAINED ADVANCE HAS TO BE COMPUTED AFTER GIVING DUE WEIGHTAGE TO THE INCOME EARNED. IT MEANS THAT THE INCOME EARNED IS ALSO BE REINVESTED IN A FORM OF FRESH ADVANCES AND IT IS TO BE GIVEN DUE WEIGHTAGE WHILE ARRIVING THE UNEXPLAINED FRESH ADVANCE. THUS, WE HAVE DEDUCTED THE INCOME OFFERED TO TAX IN EACH YEAR FROM THE CUMULATIVE ADVANCE OF THAT YEAR WHILE ARRIVING AT FRESH ADVANCE IN EACH YEAR. WE HAVE OBSERVED THAT THE ASSESSING OFFICER HAS NOT GIVEN DEDUCTION TOWARDS INTEREST INCOME EARNED WHILE DETERMINING THE FRESH ADVANCE. THE INCOME EARNED IS ALREADY SUBJECTED TO TAX AND IT IS REINVESTED AND DUE DEDUCTION IS TO BE GIVEN WHILE ASCERTAINING THE FRESH ADVANCE. ACCORDINGLY, WE HAVE DEDUCTED THE INTEREST OFFERED TO TAX WHILE DETERMINING THE FRESH ADVANCE. THE ASSESSING OFFICER IS DIRECTED TO CONSIDER THE SAME WHILE DETERMINING THE FRESH ADVANCE. WE HAVE ALSO GIVEN DEDUCTION AT 30% TOWARDS BAD DEBTS WHILE DETERMINING THE UNEXPLAINED FRESH ADVANCE AND SAME TO BE GIVEN ON I.T.A. NO S . 1653/H/17 AND OTHERS INDERJEET SINGH, HYD. 4 INTEREST INCOME. THUS, THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE TAXABLE INCOME FROM AUTO FINANCE AS FOLLOWS: FINANCIAL YEAR ASSESSM - ENT YEAR UNDISCLOSED INCOME* RS. FRESH UNEXPLAINED ADDITIONAL ADVANCE MADE DURING THE YEAR UNACCOUNTED INCOME DURING THE YEAR* 2002 - 03 2003 - 04 30580 616959 647539 2003 - 04 2004 - 05 216524 1010283 1226807 2004 - 05 2005 - 06 496427 459461 955888 2005 - 06 2006 - 07 782304 3945992 4728296 2006 - 07 2007 - 08 1063007 IGNORED 1063007 2007 - 08 2008 - 09 574797 IGNORED 574797 * BAD DEBTS ON INTEREST INCOME TO BE EXCLUDED BY ASSESSING OFFICER 16. W ITH THESE OBSERVATIONS, WE SET ASIDE THE ENTIRE ISSUE TO THE FILE OF ASSESSING OFFICER FOR LIMITED PURPOSE OF REFRAMING THE ASSESSABLE INCOME IN EACH ASSESSMENT YEAR AFTER CONSIDERING THE DISALLOWANCE OF EXPENSES ON COMMISSION INCOME IF ANY AS DISCUSSED IN THE FOLLOWING PARA. 8.1 THE ASSESSEE HAS FILED A CHART SHOWING ADVANCES GIVEN, EMI RECEIVED, CUMULATIVE ADVANCES, NET INTEREST AT 1% AND ALSO BAD DEBTS TO BE GIVEN AT 30% AS DIRECTED BY THE ITAT AND THE SAME IS REPRODUCED HEREUNDER FOR READY REFERENCE: MONTH ADVANCE GIVEN EMI RECEIVED CUMULA - TIVE ADV. NET INT. (@1%) TOTAL INTEREST FOR THE YEAR UNEXPLA INED ADVANCE FOR THE YEAR CLOSING BAL. OF CUMULATIV E ADV. FOR THE YEAR NET ADDI - TION MADE AY 03 - 04 JUN02 9000 0 9000 90 JUL02 52000 1170 59830 598 AUG02 16000 5520 70310 703 SEP02 94000 7340 156970 1570 OCT02 51000 16110 191860 1919 NOV02 75000 23780 243080 2431 DEC02 142000 31580 353500 3535 JAN03 126000 47420 432080 4321 FEB03 258500 61120 629460 6295 MAR03 372500 90010 911950 9120 30580 911950 911950 BAD DEBTS WRITTEN OF @ 30% 9174 273585 LESS: INTEREST INCOME 30580 LESS: EXPENS ES ON COMM.IN COME 87050 I.T.A. NO S . 1653/H/17 AND OTHERS INDERJEET SINGH, HYD. 5 21406 520735 87050 629191 AY 04 - 05 APR03 336000 124260 1123690 11237 MAY03 356000 156120 1323570 13236 JUN03 228000 204510 1347060 13471 JUL03 427000 228360 1545700 15457 AUG03 517500 267310 1795890 17959 SEP03 226000 302050 1719840 17198 OCT03 529500 315270 1934070 19341 NOV03 256600 352690 1837980 18380 DEC03 593000 374280 2056700 20567 JAN04 504500 378915 2182285 21823 FEB04 437000 405450 2213835 22138 MAR04 786000 428100 2571735 25717 216524 1659785 1659785 BAD DEBTS WRITTEN OF @ 30% 64957 497936 LESS: INT. INCOME 216524 LESS: EXP. ON COMM.IN COME 178633 151566 766693 91583 1009842 AY 05 - 06 APR04 686300 470990 2787045 27870 MAY04 955500 513860 3228685 32287 JUN04 783500 579570 3432615 34326 JUL04 1247500 618350 4061765 40618 AUG04 994500 683370 4372895 43729 SEP04 743000 737580 4378315 43783 OCT04 989500 777040 4590775 45908 NOV04 1127000 807320 4910455 49105 DEC03 953800 866830 4997425 499974 JAN05 654200 928560 4723065 47231 FEB05 646900 934820 4435145 44351 MAR05 238500 949110 3724535 37245 496427 1152800 2064750 BAD DEBTS WRITTEN OF @ 30% 148928 345840 LESS: INT. INCOME 496427 LESS: EXP. ON COMM.IN COME 206821 347499 103712 28188 479399 AY 07 - 08 APR06 2066600 2001133 10209437 102094 MAY06 1848600 2106703 9951334 99513 JUN06 1416500 2198938 9168896 91689 JUL06 1927800 2244393 8852303 88523 AUG06 2679700 2303293 9228710 92287 SEP06 2318850 2426880 9120680 91207 OCT06 2475800 2505730 9090750 90908 NOV06 2514600 2607340 8998010 89980 DEC06 1998700 2688005 8308705 83087 JAN07 2323200 2715495 7916410 79164 FEB07 2396200 2733565 7579045 75790 MAR07 3137700 2840345 7876400 78764 106300 7 BAD DEBTS WRITTEN OF @ 30% 318902 -- 744105 - 32405 776510 AY 08 - 09 APR07 2908500 2974595 7810305 78103 MAY07 3851000 3135579 8525726 85257 JUN07 3217400 3295624 8447502 84475 JUL07 3538300 3352184 8633618 86336 AUG07 2989200 3479379 8143439 81434 SEP07 2709000 3543296 7309143 73091 OCT07 2362800 3620696 6051247 60512 NOV07 124000 3616481 2558766 25588 DEC07 10000 3477966 - 909200 574797 BAD 172439 I.T.A. NO S . 1653/H/17 AND OTHERS INDERJEET SINGH, HYD. 6 DEBTS WRITTEN OF @ 30% 402358 69849 472207 8.2 I FIND THAT THE TRIBUNAL HAD DIRECTED THE AO TO ALLOW 30% OF THE ADVANCES GIVEN AS BAD DEBTS AND THEREFORE, THE INTEREST INCOME THEREON ALSO HAS TO BE REDUCED BY I.E. 30%. WITH REGARD TO THE EXPENSES DISALLOWED ON COMMISSION INCOME, I AGREE WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SAME HAS TO BE CONSIDERED AS IS AVAILABLE WITH THE ASSESSEE FOR MAKING FRESH ADVANCES DURING THE YEAR. IN VIEW OF THE SAME, I DIRECT THE AO TO ALLOW 30% OF THE GROSS ADVANCES AS WELL AS INTEREST THEREON AS BAD D EBTS BY 30% AND DISALLOWED EXPENSES ON COMMISSION INCOME BE TELESCOPED AS SOURCES FOR FRESH ADVANCES DURING THE YEAR. WITH THESE DIRECTIONS, THE APPEALS OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, ALL THE APPEALS UN DER CONSIDERATION ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 17 TH DECEMBER , 2019. SD/ - ( P. MADHAVI DEVI ) JUDICIAL MEMBER HYDERABAD, DATED 17 TH DECEMBER , 201 9. KV COPY FORWARDED TO: 1. INDERJEET SINGH, C/O P. MURALI & CO., CAS, 6 - 3 - 655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82 2 . ACIT, CIRCLE 4(1), HYDERABAD. 3 . C I T ( A ) 1, , HYDERABAD. 4. 5. PR. C I T 1 , HYD. THE DR, ITAT, HYDERABAD 6 . GUARD FILE