ACIT, Balasore V. M/s Almighty Mining Developers Pvt Ltd,

ITA 176/CTK/2012

• Counselvise Citation: 17622114 RSA 2012
• Duration Of Justice: 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 08-03-2012
• Court: TRIBUNAL
• Department Lawyers: AS WELL AS ARE ON SOLITARY I
• Keywords: Business expenditure
• Section: 40A(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER ITA NO.176/CTK/2012 ITA NO.225/CTK/2012 C.O.NO.19/CTK/2012 (FILED BY ASSESSEE) ACIT, BALASORE CIRCLE,BALASORE. .. APPELLANT - VERSUS - M/S.ALMIGHTY MINING DEVELOPERS PVT.LTD. ,ASURALI, BHADRAK PAN: AAFCA4858E .. RESPONDENT M/S.ALMIGHTY MINING DEVELOPERS PVT.LTD.,ASURALI, BHADRAK PAN: AAFCA4858E .. APPELLANT - VERSUS - ACIT,BALASORE CIRCLE, BALASORE. .. RESPONDEN T FOR THE ASSESSEE: / S MT. PARAMITA TRIPATHY, CIT - DR FOR THE DEPARTMENT: / SHRI . S.MISHRA,AR / DATE OF HEARING: 07.08.2012 / DATE OF PRONOUNCEMENT: 14.08.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER . THESE CROSS APPEALS BY THE ASSESSEE AS WELL AS THE REVENUE ARE ON SOLITARY ISSUE OF PART SUSTAINING THE EXPENDITURES DISALLOWED IN THE FORM OF ESTIMATING INCOME BEING INCOME FROM TRANSPORT CONTRACT RECEIPTS ADJUDICATED BY THE LEARNED CIT(A) TO BE CONSIDERED AT 7.5% WHICH THE ASSESSEE AGITATES IS ON HIGHER SIDE ON THE BASIS OF FACTS AND CIRCUMSTANCES OF THE CASE AS BROUGHT ON RECORD BY THE ASSESSING OFFICER. THE DELETION OF EXPENSES DISALLOWE D BY THE ASSESSING OFFICER IS SUPPORTED BY THE ASSESSEE APPELLANT BY WAY OF A CROSS OBJECTION. 2. WE PROCEED TO DISPOSE OF THE APPEALS AND CROSS OBJECTION TOGETHER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO.176/CTK/2012 ITA NO.225/CTK/2012 C.O.NO.19/CTK/2012(FILED BY ASSESSEE) 2 3. THE BRIEF FACTS AS HAVE BEEN BROUGHT ON RECORD A RE THAT THE ASSESSEE IS A COMPANY RENDERING SUB - AGENCY WORK FOR TRANSPORTING AND LOADING CONTRACTS OF IRON ORE AND MANGANESE. THE GROSS RECEIPT IS 2.34 CRORES ON WHICH THE ASSESSEE HAD FILED RETURN OF INCOME OF 5,49,024. THE ASSESSING OFFICER AFTER VERIF YING THE FINANCIAL STATEMENTS HELD THAT THE ASSESSEE IS NOT MAINTAINING PROPER BOOKS OF ACCOUNT COMPARED TO THE EXPENDITURE CLAIMED AS MANDATORY TO BE DISCLOSED BY THE ASSESSEE BEING A PRIVATE LIMITED COMPANY IN COMPARISON TO IMMEDIATELY PRECEDING ASSESSME NT YEAR DISALLOWED INCREASE IN THE OFFICE RENT AMOUNTING TO 42,000, INCREASE IN SALARY AMOUNTING TO 4,14,000 AND INVOKED THE PROVISION OF SECTION 40A(3) BY HOLDING A VIEW BY TAKING SUPPORT FROM THE DECISION OF APPELLATE AUTHORITIES THAT A SUM OF 1,09,1 6,451 CLAIMED BY THE ASSESSEE AS PAYMENT TO TRUCK OWNERS AND LOADERS AND UNLOADERS WAS TO BE DISALLOWED BEING CASH PAYMENTS EXCEEDING 20,000 EACH. 4. AGGRIEVED, THE ASSESSEE APPEALED BEFORE THE FIRST APPELLATE AUTHORITY WHO TAKING RECOURSE TO THE TOTALI TY OF THE FACTS BRUSHED ASIDE THE FINDING OF THE ASSESSING OFFICER AS DETERMINATION OF CORRECT INCOME DID NOT COMMENSURATE WITH THE FINDING OF THE INVOKING THE PROVISIONS OF SECTION 145(3). HOWEVER, THE LEARNED CIT(A) WENT A STEP FURTHER BY FOLLOWING THE D ECISION OF HONBLE ORISSA HIGH COURT IN THE CASE OF UTKAL ROAD L INES V. REGISTRAR, ITAT (336 ITR 149) WHEREIN THE HONBLE HIGH COURT UPHELD THE DETERMINATION BY THE ITAT PROFIT @ 7.5% OF THE GROSS RECEIPTS , DIRECTED THE ASSESSING OFFICER TO ASSESS 7.5% OF 2.34 CORES. 5. THE ASSESSEE IS IN APPEAL AGAINST THE DETERMINATION OF 7.5% ON 2.34 CRORES RECEIPTS WHEN THE REVENUE IS IN APPEAL THAT ON THE FACTS FOUND BY THE ASSESSING OFFICER FOR DISALLOWANCE OF VARIOUS EXPENSES COULD NOT BE EQUATED ITA NO.176/CTK/2012 ITA NO.225/CTK/2012 C.O.NO.19/CTK/2012(FILED BY ASSESSEE) 3 WITH ESTIMATION O F INCOME AT 7.5% WHEN THE ASSESSING OFFICER HAS NEITHER REJECTED THE BOOK RESULT U/S.145(3) NOR PASS ED THE ASSESSMENT ON AN ESTIMATION BASIS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AT LENGTH AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFI CER DISALLOWED SOME EXPENDITURE CANNOT BE EQUATED TO REJECTION OF BOOK RESULTS PARTLY ONLY INSOFAR AS IT WAS NOT THE CASE OF THE ASSESSING OFFICER THAT HAVING VERIFIED THE BOOKS AND VOUCHERS THE COMPARISON OF THE IMMEDIATELY PRECEDING AY AND THE IMPUGNED A SSESSMENT YEAR COULD RESULT IN ANY DIFFERENCE IN THE CLAIM OF INCREASE IN BUSINESS EXPENDITURE MORE SO WHEN THE PROVISIONS OF SECTION 40A(3) ARE TO BE IDENTIFIED FOR THE PURPOSE OF CONSIDERING TAXATION OF THE SAME. THE LEARNED CIT(A) THEREFORE RIGHTLY HELD THAT THE EXPENDITURES COULD NOT BE ALLOWED ON THE BASIS OF FACT FINDING BY THE ASSESSING OFFICER. IN FACT THE GROUND RAISED BY THE REVENUE RATHER LEANS IN FAVOUR OF THE LEARNED CIT(A)S FINDING THAT THERE IS NO CORRELATION BETWEEN DISALLOWANCE OF EXPENDIT URE AND ESTIMATION OF INCOME AT A HIGHER FIGURE WHEN THE BOOKS OF ACCOUNT FORMS THE BASIS FOR THE ASSESSING OFFICER TO IDENTIFY EXPENSES TO BE DISALLOWED NOT ON MERE INCREASE THEREIN BY COMPARING THE SAME FROM THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ARGUED THAT BY NO POSSIBLE METHOD CAN A TRANSPORT AND THAT TOO A SUB - CONTRACT AGENCY COULD EARN 7.5% OF THE GROSS RECEIPTS. THE LEARNED CIT(A) THEREFORE WAS NOT TO BALANCE THE DISALLOWANCE OF EXPENSES I NSOFAR AS 7.5% N EITHER COULD BE RELATED TO THE DISALLOWANCE OF EXPENDITURE TO THE EXTENT THAT THE BUSINESS HAD INCREASED FROM 66.74 LAKHS TO 2.34 CRORES IN THE ASSESSMENT YEAR. TRANSPORTING IS PROVIDING SERVICES WHICH HAVE TO BE MET BY INCURING DIRECT EXPENSES TO BE BOR NE BY THE ASSESSEE AND CANNOT BE ITA NO.176/CTK/2012 ITA NO.225/CTK/2012 C.O.NO.19/CTK/2012(FILED BY ASSESSEE) 4 CONSIDERED FOR ESTIMATION INS O FAR AS THE BENCHMARK FOR EARNING OF SUCH INCOME AS PRESCRIBED U/S.44AE CANNOT BE A PERCENTAGE RETURN OF GROSS RECEIPTS. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ARGUED THAT THE RATE OF RETURN O F INCOME IS ON THE BASIS OF HOLDING A NUMBER OF TRUCKS AND HEAVY VEHICLES WHICH WAS NEVER THE CASE OF THE ASSESSEE. THE ASSESSEE HAS RECEIVED BY RAISING BILLS OF 2.34 CRORES AGAINST WHICH IT HAS PAID 1.09 CRORES ARE DIRECTLY ATTRIBUTABLE TO THE TRANSPORTING BUSINESS CANNOT BE DISALLOWED FOR THE PURPOSE OF ESTIMATIN G OR ENHANCING THE INCOME FROM 2.34% S PER THE BOOKS OF ACCOUNT TO 7.5% AS BROUGHT ON RECORD BY THE LEARNED CIT(A) WITHOUT ANY BASIS. THE LEARNED COUNSEL FOR THE ASSESSEE HAS TRIED TO BRING ON RECORD THE ESTIMATION AT 7.5% OF THE GROSS RECEIPTS WOULD ARITHMETICALLY BE DISALLOWANCE OF THE OTHER EXPENSES WHEN THE INCREASE IN BUSINESS IS IN DIRECT RELATION TO THE FINDING AS NOTED BY THE ASSESSING OFFICER WHICH THE LEARNED CIT(A) HAS RIGHTLY ACCEPTED WAS ON THE BASIS OF WRONG PREMISE FOR REJECTION . WE ARE OF THE CONSIDERED VIEW THAT DISALLOWANCE U/S.40A(3) COULD NOT BE CONSIDERED FOR THE PURPOSE OF ENHANCEM ENT OR ESTIMATING INCOME AT A HIGHER PERCENTAGE INSOFAR AS THE PROVISIONS OF SECTION 40A(3) ARE TO DISALLOW EXPENDITURE WHICH HAVE BEEN MADE BUT IN CASH EXCEEDING 20,000 EACH. NEITHER THE ASSESSING OFFICER NOR THE LEARNED CIT(A) HAS POINTED OUT ANY SUCH N ATURE OF DEFECT IN THE BOOKS OF ACCOUNT CLEARLY INDICATES THAT ALL THE TOTAL EXPENDITURE AT 92.5% ARE TO BE ALLOWED. NOW IT IS ONLY THE DETERMINATION OF RETURN OF GROSS BILLS RECEIVED FROM TRANSPORTING WORKS AT CONTRACT BASIS WHICH THE ASSESSEE IS DISPUTIN G HAVING BEEN ESTIMATED ON A HYPOTHETICAL FIGURE OF 7.5% THEREON. WE DO FIND THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE JUSTIFIED THAT THE ASSESSEE BEING A PRIVATE LIMITED COMPANY HAVING ITS BOOKS OF ACCOUNT AUDITED AND ITA NO.176/CTK/2012 ITA NO.225/CTK/2012 C.O.NO.19/CTK/2012(FILED BY ASSESSEE) 5 NOT HAVING ITS OWN TRUCK S FOR CARRYING OUT THE TRANSPORTATION COULD NOT BE BURDENED WITH DISALLOWANCE OF THOSE EXPEN D ITURES WHICH HAVE BEEN GENUINENELY PAID NEITHER INVITING THE PROVISIONS OF SECTION 40A(3) OR SECTION 40(A)(IA) CAN BE CONSIDERED FOR ENHANCEMENT IN INCOME EARNED @2.34% THE ASSESSEE HAD SHOWN INCOME OF 5,49,024. IN THE INTEREST OF JUSTICE, WE ARE INCLINED TO HOLD THAT THE NET PROFIT AT 5% OF 2.34 CRORES WOULD BE JUSTIFIABLE INSOFAR AS THE ASSESSEE CANNOT BE SAID TO BE SIPHONING AWAY ITS OWN PROFITS TO INCUR EXPENDITURE WHEN HE HAS RENDERED THE FULL INC OME BY INCLUDING ALL THE RECEIPTS FROM THE CONTRACTS FOR THE IMPUGNED ASSESSMENT YEAR. IN OTHER WORDS, HE DO ES NOT HAVE ANY BOGUS CREDITORS TO INDICATE THAT THE EXPENSES HAVE BEEN INFLATED. WE DO FIND THAT THE LEARNED DRS CONTENTION THAT THE DISALLOWANCE OF EXPENDITURE U/S.40A(3) OUGHT TO NOT TO HAVE BEEN CONSIDERED BY THE LEARNED CIT(A) BY ENHANCING THE INCOME HAS NOT BEEN LINKED BY THE RE VENUE TO THE EXTENT THAT THE WHOLE OF THE AMOUNT HAS BEEN DISALLOWED WITHOUT IDENTIFYING AS TO HOW SUCH EXPENDITURE CO ULD BE DISALLOWED U/S.40A(3). WHEN THE REJECTION OF BOOKS OF ACCOUNT WAS NOT THE CASE OF THE ASSESSING OFFICER THEN THE LEARNED CIT(A) HAS RIGHTLY OPTED FOR ESTIMATION OF INCOME WHICH ARE TWO DIFFERENT ASPECTS NOT BE CORRELATED. THE LEARNED CIT(A) O N THE B ASIS OF FACTS IN ANOTHER CASE HAS TRIED TO SUSTAIN ENHANCEMENT HAS BEEN RIGHTLY ADDRESSED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE INSOFAR AS THE DIRECT EXPENSES CANNOT BE DISALLOWED OR EQUATED WITH THE ENHANCEMENT. THE LAW DOES NOT PROVIDE TO BALANCE TH E DISALLOWANCE OF EXPENSES WITH ENHANCEMENT OF INCOME ON ESTIMATION. IN THIS VIEW OF THE MATTER, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSES SEE SUPPORTING THE ORDER OF THE LEARNED ITA NO.176/CTK/2012 ITA NO.225/CTK/2012 C.O.NO.19/CTK/2012(FILED BY ASSESSEE) 6 CIT(A) TO THE EXTENT THE REVENUE HAS DISPUTED IN ITS APPEAL , IS DISPOSED OF ACCORDINGLY. S D/ - S D/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14.08.2012 - COPY OF THE ORDER FORWARDED TO: 1 . THE ASSESSEE : M/S.ALMIGHTY MINING DEVELOPERS PVT.LTD.,ASURALI, BHADRAK PAN: AAFCA4858E 2 THE DEPARTMENT: ACIT, BALASORE CIRCLE, BALASORE 3 . / THE CIT, 4 . ( )/ THE CIT(A), 5 . / DR, CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY, / BY ORDER, APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DATE OF DICTATION 07.08.2012 . 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 08.08.2012 OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S 14.08.2012 . 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 14.08.2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. ITA NO.176/CTK/2012 ITA NO.225/CTK/2012 C.O.NO.19/CTK/2012(FILED BY ASSESSEE) 7 9. DATE OF DESPATCH OF THE ORDER ..