THE ACIT., CIRCLE - 1, Rajahmundry V. M/s Jupudi Jagannadha Rao & Sons, Rajahmundry

ITA 18/VIZ/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9534 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 30-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 6

Judgement Text

ITA NO.18 OF 2013 JUPUDI JAGANNADHA RAO & SONS RAJA HMUNDRY PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.18 /VIZAG/2013 ASSESSMENT YEAR: 2009-10 ACIT, CIRCLE 1 RAJAHMUNDRY M/S. JUPUDI JAGANNADHA RAO & SONS D.NO.45-22-17 BYPASS ROAD, RAJAHMUNDRY (APPELLANT) VS. (RESPONDENT) PAN NO: AABFJ 7016 N DEPARTMENT BY: SHRI SARISH KUMAR, I. DR ASSESSEE BY: SHRI C. SUBRAMANYAM, CA DATE OF HEARING: 25/02/2015 DATE OF PRONOUNCEMENT: 03/03/2015 ORDER PER SAKTIJIT DEY: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 30.08.2012 PASSED BY THE LEARNED CIT (A) VISAKHAPAT NAM FOR THE ASSESSMENT YEAR 2009-10. 2. THERE IS A DELAY OF 75 DAYS IN FILING OF THE APP EAL BY THE DEPARTMENT. AFTER CONSIDERING THE CAUSE OF DELAY AS EXPLAINED I N PETITION SEEKING CONDONATION OF DELAY, WE ARE INCLINED TO CONDONE TH E DELAY AND ADMIT THE APPEAL FOR HEARING ON MERIT. 3. THE DEPARTMENT HAS RAISED SIX GROUNDS. GROUND NO S. 1 & 6 BEING GENERAL GROUNDS, DO NOT REQUIRE SPECIFIC ADJUDICATI ON. GROUND NOS. 2 3 & 4 RELATE TO THE COMMON ISSUE OF REDUCTION OF PROFIT R ATE FROM 5% TO 3% BY THE LEARNED CIT (A). ITA NO.18 OF 2013 JUPUDI JAGANNADHA RAO & SONS RAJA HMUNDRY PAGE 2 OF 5 4. BRIEF FACTS ARE, ASSESSEE A PARTNERSHIP FIRM IS IN THE BUSINESS OF TRADING IN TYRES. FOR THE ASSESSMENT YEAR UNDER CON SIDERATION ASSESSEE FILED ITS RETURN ON 30.09.2009 DECLARING INCOME OF RS.25, 51,800. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER ON VERIFI CATION OF THE BOOKS OF ACCOUNT AS WELL AS FINANCIAL STATEMENTS NOTICED THA T AFTER CLAIMING VARIOUS EXPENSES NET PROFIT SHOWN BY THE ASSESSEE COMES TO ONLY 0.6%. ASSESSING OFFICER ALSO OBSERVED THAT MANY OF THE VOUCHERS MAI NTAINED BY THE ASSESSEE ARE SELF MADE WITHOUT HAVING FULL DETAILS. THEREFOR E, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT FULLY AND PROPERLY VERIFIABLE AND THE BOOKS OF ACCOUNT OF THE ASSESSEE CANNOT BE RELIED UPON. ACCORDINGLY, AFTER REJECTING THE BOOKS OF ACCOUNT ASSESSING OFFICER PROCEEDED TO ESTIMATE THE PROFITS @5% OF TH E TOTAL SALES WHICH WORKED OUT TO RS.1,51,30,711/-. BEING AGGRIEVED BY THE ESTIMATION OF PROFIT AT 5%, ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A) . IN COURSE OF HEARING OF APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, IT WAS SUBMITTED BY THE ASSESSEE THAT THE NET PROFIT RATE OF 5% ADOPTED BY THE ASSESSING OFFICER IS NOT ONLY ON THE HIGHER SIDE BUT ALSO WITHOUT ANY RE ASONABLE BASIS. IT WAS SUBMITTED BY THE ASSESSEE THAT THE NET PROFIT DECLA RED BY THE ASSESSEE FOR THE PRECEDING THREE ASSESSMENT YEARS BEFORE INTERES T AND REMUNERATION TO THE PARTNERS ON AN AVERAGE WORKS OUT TO 1.39%. ASSE SSEE ALSO BROUGHT TO THE NOTICE OF THE CIT (A), THE PROFIT DECLARED BY S OME OF THE TYRE MANUFACTURERS VIZ., APOLLO TYRES, MRF TYRES LTD AND JK TYRES & INDUSTRIES LTD WHICH NEVER EXCEEDED 3.8%. AS PER THE INFORMATI ON SUBMITTED, THE AVERAGE NET PROFIT PERCENTAGE OF THE THREE MAJOR TY RE MANUFACTURING CONCERNS REMAINED AROUND 2.56% FOR THE LAST THREE Y EARS. THE ASSESSEE ALSO SUBMITTED THAT IN CASE OF ITS OWN SISTER CONCE RN, WHICH IS ALSO IN THE TYRE TRADING BUSINESS, THE NET PROFIT DECLARED IS 0 .4% OF THE TURN OVER. THUS IT WAS SUBMITTED BY THE ASSESSEE THAT KEEPING IN VI EW THE NET PROFIT RATE OF THE COMPARABLE CASES, THE PROFIT DECLARED BY THE AS SESSEE IS REASONABLE. THE LEARNED CIT (A) AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE IN THE CONTEXT OF THE FACTS AND MATERIALS PLACED BEFO RE HIM REDUCED THE NET PROFIT RATE FROM 5% TO 3% OBSERVING AS UNDER: ITA NO.18 OF 2013 JUPUDI JAGANNADHA RAO & SONS RAJA HMUNDRY PAGE 3 OF 5 6.2 ESTIMATION OF PROFITS : ASSESSING OFFICER ESTIMATED THE PROFITS AT 5% OF TO TAL TURNOVER. IN THIS REGARD ASSESSEE FURNISHED DETAILE D ARGUMENTS WHICH ARE NARRATED ABOVE. ASSESSING OFFIC ER NO DOUBT HAS THE POWER TO ESTIMATE THE PROFITS BUT IS REQUIRED TO BASE HIS ESTIMATION EITHER ON THE PREVIOUS YEAR S ACCOUNTS OF THE ASSESSEE OR ON THE COMPARATIVE CASES IN THE SIMILAR TRADE. ASSESSING OFFICER IN THIS CASE DID NEITHER. ON THE CONTRARY, ASSESSEE FURNISHED COMPARATIVE FIGURES OF ITS OWN CASE AND ALSO CASES OF TYRE MANUFACTURING CONCERNS. IT ALSO FURNISHED THE STATISTICS PERTAINING TO ANOTHER SIST ER CONCERN WHICH IS IN THE SAME LINE OF TYRE TRADING BUSINESS. ON PERUSAL OF THESE COMPARATIVES IT IS FOUND THAT THE AVERAGE PROFITS IN THE TRADING BUSINESS ARE NOT MORE THAN 2.5%. IN VIE W OF THE ABOVE I FIND THAT THE ESTIMATE MADE BY ASSESSING OF FICER IS ON THE HIGHER SIDE AND HENCE I DIRECT THE ASSESSING OFFICER TO REDUCE THE ESTIMATE TO 3% OF THE TURNOVER BEFORE INTEREST AND REMUNERATION TO THE PARTNERS 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES AS WELL AS THE MATERIALS PLACED ON RECORD. IT IS THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATI VE THAT THE CIT (A) WHILE REDUCING THE PROFIT RATE TO 3% HAS CONSIDERED THE PROFIT RATE OF TYRE MANUFACTURING CONCERNS, WHEREAS THE ASSESSEE IS IN TYRE TRADING BUSINESS. HENCE, THE RATE ADOPTED BY THE LEARNED CIT (A) IS N OT CORRECT. THE LEARNED AUTHORISED REPRESENTATIVE ON THE OTHER HAND SUBMITT ED THAT THE LEARNED CIT (A) NOT ONLY CONSIDERED THE PROFIT RATE OF TYRE MANUFACTURING UNIT BUT ALSO CONSIDERED THE NET PROFIT RATE OF TYRE TRADING CONCERNS. THEREFORE, WHEN THE NET PROFIT RATE ADOPTED BY THE LEARNED CIT (A) IS ON SOME BASIS, THERE IS NO JUSTIFICATION IN INTERFERING WITH THE S AME. HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF THE LEARNED CIT (A) IN REDUCING THE PROFIT RATE FROM 5% TO 3%. AS CAN BE SEEN THE ASSESSING OFFICER WHILE ESTIMATING THE PROFIT A T 5% HAS GIVEN NO REASON AS TO WHY HE ADOPTED SUCH RATE, WHEREAS THE LEARNED CIT (A) AFTER CONSIDERING THE PROFIT DECLARED IN COMPARABLE CASES HAS ADOPTED THE RATE OF 3%. IN THE AFORESAID VIEW OF THE MATTER, THE RATE A DOPTED BY THE LEARNED ITA NO.18 OF 2013 JUPUDI JAGANNADHA RAO & SONS RAJA HMUNDRY PAGE 4 OF 5 CIT (A) DESERVES TO BE UPHELD. ACCORDINGLY, WE DISM ISS THE GROUNDS RAISED BY THE DEPARTMENT. 6. THE NEXT ISSUE RAISED BY THE DEPARTMENT IN GROUN D NO.5 IS WITH REGARD TO THE DECISION OF THE LEARNED CIT (A) IN AC CEPTING ASSESSEES CLAIM OF DEDUCTION UNDER SECTION 40(B) OF THE ACT TOWARDS REMUNERATION AND INTERESTS PAID TO THE PARTNERS. AS CAN BE SEEN WHIL E COMPLETING THE ASSESSMENT THE ASSESSING OFFICER AFTER ESTIMATING T HE PROFIT DID NOT ALLOW FURTHER DEDUCTION TOWARDS INTERESTS AND REMUNERATIO N PAID TO PARTNERS IN TERMS OF SEC 40(B) OF THE ACT. BEFORE THE FIRST APP ELLATE AUTHORITY IT WAS SUBMITTED BY THE ASSESSEE THAT EVEN IN THE CASE OF ESTIMATION, THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 40(B) TOWARDS REMUNERATION AND INTERESTS PAID TO THE PARTNERS. IN SUPPORT OF SUCH CONTENTION, ASSESSEE RELIED UPON THE DECISION OF THE ITAT HYDERABAD BENCH IN TH E CASE OF C. ESWAR REDDY AND COMPANY IN ITA NO.668 &670/HYD/2009 DATED 31.01.2011. THE LEARNED CIT (A) FOLLOWING THE SAID ORDER OF THE ITA T HYDERABAD BENCH ALLOWED ASSESSEES CLAIM BY DIRECTING THE ASSESSING OFFICER TO ALLOW REMUNERATION AND INTEREST PAID TO PARTNERS AS PER T HE PROVISIONS OF SEC 40(B). 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. IT IS THE CONTENTION OF THE DEPARTMENT THAT IN VIEW OF TH E RATIO LAID DOWN BY THE HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF IN DWELL CONSTRUCTIONS LTD VS. CIT (232 ITR 776), ONCE ASSESSEES BOOKS OF ACC OUNT IS REJECTED AND PROFIT IS ESTIMATED, NO FURTHER DEDUCTION ARE TO BE ALLOWED. HOWEVER, WE ARE NOT CONVINCED WITH THE AFORESAID ARGUMENTS OF THE D EPARTMENT. AS CAN BE SEEN, THE COORDINATE BENCH IN THE CASE OF C. ESWAR REDDY & COMPANY ((SUPRA)), AFTER TAKING INTO CONSIDERATION JUDGMENT OF THE HON'BLE A.P. HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS LTD VS. CIT ((SUPRA)) HELD THAT EVEN IN CASE OF ESTIMATION OF PROFIT, AN ASSESSEE W OULD BE ENTITLED TO FURTHER DEDUCTION TOWARDS SALARY AND INTERESTS PAID TO THE PARTNERS SUBJECT TO THE ITA NO.18 OF 2013 JUPUDI JAGANNADHA RAO & SONS RAJA HMUNDRY PAGE 5 OF 5 LIMITATIONS PROVIDED IN SEC 40(B) OF THE ACT. THAT BEING THE CASE, THE CIT (A)S ORDER IN THIS REGARD DESERVES TO BE UPHELD. A CCORDINGLY, WE DISMISS THIS GROUND RAISED BY THE DEPARTMENT. 8. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMIS SED. PRONOUNCED IN THE OPEN COURT ON 03.03.2015. SD/- SD/- (J. SUDHAKAR REDDY) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 03.03.2015 PVV/SPS CAMP: VISAKHAPATNAM, COPY TO 1 ACIT, CIRCLE 1, RAJAHMUNDRY 2 M/S. JUPUDI JAGANNADHA RAO & SONS, D.NO.45-22-17 BYPASS ROAD, RAJAHMUNDRY 3 THE CIT (A) VISAKHAPATNAM 4 THE CIT, RAJAHMUNDRY 5 THE CIT, VISAKHAPATNAM 6 DEPARTMENTAL REPRESENTATIVE, ITAT VISAKHAPATNAM 7 GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM