Hakumantrai Dakhanmal Jadhwani, Jalgaon V. Deputy Commissioner of Income-tax,

ITA 1855/PUN/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1583 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 29-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S P WALIMBE
• Keywords: Depreciation; Principle of natural justice; Cost of acquisition; Set aside
• Section: 133A; 13; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R.S.SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY, JM . / I TA NO. 1855 /PUN/20 16 / ASSESSMENT YEAR : 2011 - 12 SHRI HAKUMANTRAI DAKHANMAL JADHWANI, PROP. OF SURESH TRADING COMPANY, 32 - 2, SINDHI COLONY, KANWAR NAGAR, JALGAON - 425 001. PAN : AALPJ4652N ....... / APPELLANT / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 1, JALGAON. / RESPONDENT A SSESSEE BY : SHRI PRAMOD SHINGTE REVENUE BY : SHRI S.P. WALIMBE / DATE OF HEARING : 1 1 . 1 2 .2020 / DATE OF PRONOUNCEMENT : 15 . 1 2 .2020 / ORDER PER PARTHA SARATHI CHAUDHU RY, JM: THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT(APPEAL) - 2, NASHIK DATED 08.07.2016 FOR THE ASSESSMENT YEAR 2011 - 12 AS PER THE FOLLOWING GROUNDS OF APPEAL ON RECORD: 2 ITA NO. 1855 /PUN/20 16 A.Y. 2011 - 12 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING THE ADDITION OF RS.25,56,706/ - , BY ESTIMATING TH E GROSS PROFIT RATIO WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT AS ENVISAGED IN SECTION 145 OF INCOME TAX ACT, 1961 SUCH ACTION BEING ILLEGAL AND THEREFORE ENTIRE ADDITION DESERVES TO BE DELETED. 2. ON THE FACTS AND IN THE CIRCUMSTA NCES OF THE CASE AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING THE ADDITION OF RS.1,26,000/ - BY INVOKING PROVISIONS OF SECTION 40A(2)(B) OUT OF TOTAL SALARY PAID TO THREE SONS FOR THE SERVICES RENDERED BY THEM DURING THE COURSE OF BUSINESS ACTIVIT Y, SUCH AD - HOC DISALLOWANCE IS BAD IN LAW AND THEREFORE DESERVES TO BE DELETED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LOWER AUTHORITIES HAVE ERRED IN MAKING AD - HOC DISALLOWANCE OF RS.19,148/ - BEING 10% OF EXPENSES DEBITED UNDER THE HEAD TELEPHONE EXPENSES - RS.23,105/ - , VEHICLE EXPENSE - RS.30,360/ - AND DEPRECIATION - RS.1,38,017/ - BY TREATING IT AS PERSONAL IN NATURE, SUCH AD - HOC DISALLOWANCE IS INCORRECT AND ENTIRE ADDITION NEEDS TO BE DELETED. THE APPELLANT CRAVES FOR TO L EAVE, ADD, ALTER, MODIFY, DELETE ABOVE GROUND OF APPEAL BEFORE OR AT THE TIME HEARING, IN THE INTEREST OF NATURAL JUSTICE. 2. GROUND NO.1 PERTAINS TO THE DISALLOWANCE MADE IN RESPECT OF ESTIMATED GROSS PROFIT AMOUNTING TO RS.25,56,706/ - . 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY THE ASSESSING OFFICER THAT GROSS PROFIT RATIO FOR THE YEAR UNDER CONSIDERATION I.E. 2011 - 12 WAS AT 4.23%. THAT FOR THE ASSESSMENT YEAR 2010 - 11, THE ASSESSEE HAD GROSS PROFIT PERCENTAGE OF 6.64% AND THE ASSESSING OFFICER WANTED TO ASCERTAIN THE REASONS FROM THE ASSESSEE THAT GROSS PROFIT PERCENTAGE WHICH IS REDUCED FROM 6.64% TO 4.23% IN THIS YEAR FROM LAST YEAR AND THEREFORE, THE ASSESSEE SHOULD EXPLAIN THE FALL OF GROSS PROFIT PERCENTAGE IN TERMS BY SU BSTANTIATING WITH FILING SUBMISSIONS WITH COPIES OF SALE BILLS TO SHOW THAT THE SALE PRICE IS REDUCED FROM LAST YEAR WHICH IS ULTIMATELY AFFECTING THE FALL IN GROSS PROFIT PERCENTAGE TERMS OR THAT BY SUBMITTING PURCHASE BILLS TO SHOW PURCHASE COST IS INCRE ASED, FOR WHICH ALSO, THERE IS FALL IN GROSS PROFIT PERCENTAGE. THE ASSESSEE FILED SUBMISSIONS BEFORE THE ASSESSING OFFICER WITH 3 ITA NO. 1855 /PUN/20 16 A.Y. 2011 - 12 DETAILED CLARIFICATION AND THE SUBMISSIONS DID NOT FIND FAVOUR WITH THE ASSESSING OFFICER AND VIDE PARA 2.5 OF HIS ORDER, THE A SSESSING OFFICER ADOPTED AVERAGE GROSS PROFIT OF 4 YEARS OF THE ASSESSEE AFTER CONSIDERING THE GROSS PROFIT IN PERCENTAGE TERMS WHICH COMES TO AT 6.81 % AND BY CONSIDERING THIS AS BENCH MARK AND THE FACT THAT THE ASSESSEE HAD SHOWN GROSS PROFIT AT 4.23%, TH E FALL IN GROSS PROFIT PERCENTAGE WAS CALCULATED BY THE ASSESSING OFFICER AT 2.53% WHICH COMES TO RS.48,27,215/ - WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE LD. CIT(APPEAL) ON THIS ISSUE HAS TAKEN GROSS PROFIT PERCENTAGE AT 5.57% AND SINC E THE ASSESSEE HAD ALREADY OFFERED GROSS PROFIT PERCENTAGE AT 4.23%, THE LD. CIT(APPEAL) DECIDED TO ADD GROSS PROFIT PERCENTAGE OF 1.34% I.E. (5.57% - 4.23%). THUS, THE ADDITION TO THE TUNE OF RS.25,56,706/ - I.E. 1.34% OF RS.19,07,99,008/ - WAS CONFIRMED AND THE ASSESSEE WAS GIVEN RELIEF TO THE TUNE OF RS.22,70,509/ - . THE RELEVANT PART OF THE ORDER OF THE LD. CIT(APPEAL) IS EXTRACTED HEREIN BELOW FOR THE SAKE OF COMPLETENESS: 6. I HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS OF THE APPELLANT AND THE ASSESSMENT ORDER OF THE A.Y.2011 - 12. THE ASSESSING OFFICER HAS MADE THE ADDITION ON THE BASIS OF THE LOW G.P. OFFERED BY THE APPELLANT FOR THE YEAR UNDER CONSIDERATION BY COMPARING THE SAME WITH THE PREVIOUS YEAR AND THE SUCCEEDING YEAR GROSS PROFITS SHOWN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT. HERE I AM OF THE VIEW THAT IT IS NOT LOGICAL FOR THE A.O. TO TAKE THE G.P. FIGURES OF THE SUCCEEDING YEAR AS IT IS COMMON PRACTICE TO CONSIDER THE G.P. OF THE PREVIOUS COUPLE OF YEARS TO COME TO THE FIGURE OF THE AVERAGE G.P., IF AT ALL THE A.O. WANTS TO MAKE THE ADDITION ON THIS BASIS. 7. THE GROUND TAKEN BY THE APPELLANT THAT THE A.O. HAS REJECTED THE BOOKS OF THE APPELLANT WITHOUT POINTING OUT ANY SPECIFIC DEFECT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE FO R THE YEAR UNDER CONSIDERATION. IN THE ASSESSMENT ORDER THE A.O. HAS CLEARLY POINTED OUT THE REASONS FOR THE REJECTION OF THE BOOKS AS UNDER: - A . ASSESSEE COULD NOT SUBSTANTIATE THE COMPLETENESS AND CORRECTNESS OF THE ACCOUNTS PARTICULARLY IN VIEW OF NO DET AILS BEING SUBMITTED BY THE ASSESSEE IN QUANTITATIVE TERMS. 4 ITA NO. 1855 /PUN/20 16 A.Y. 2011 - 12 B . OUT OF TOTAL PURCHASES OF ( 17,85,68,244/ - , PURCHASES OF (12,88,11,434/ - ARE MADE FROM UNREGISTERED DEALERS, I.E. THE DEALERS WHO ARE NOT REGISTERED AND NOT PAYING ANY SALES TAX. C . NO JUSTIFICATION AS REGARDS TO THE BREAKAGE/DAMAGES CLAIMED IN VIEW OF THE ABOVE, THE CONTENTION OF THE APPELLANT THAT THE A.O. HAS NOT GIVEN THE SPECIFIC REASON FOR REJECTION OF BOOKS OF ACCOUNT IS NOT TENABLE. THE JUDICIAL DECISIONS IN THE CASE OF ALLUMIN UM . INDUSTRIES (P) LTD. V. CIT (1995) 80 TAXMAN 184(GAU) AND RAIS AND CO. V. ASSTT CIT (2003) 172 TAXATION 79 (CAL - TRIB), ON WHICH THE APPELLANT HAS RELIED UPON, ARE NOT SQUARELY APPLICABLE TO HIS CASE, AS THE REASON FOR THE REJECTION OF THE BOOKS WERE GIVEN BY THE A.O. AND HAS RIGHTLY REJECTED THE BOOKS U/S 145 OF THE INCOME TAX ACT, 1961. 8. HOWEVER, THE REASONING ADOPTED BY THE A.O. THAT, MY PREDECESSOR HAS CONFIRMED THE SIMILAR ADDITION MADE FOR THE A.Y. 2009 - 10 AND HENCE THE ADDITION NOW MADE IS GENUINE, IS NOT CORRECT. THE CIRCUMSTANCES AND THE FACTS FOR THE A.Y. 2009 - 10 WERE TOTALLY DIFFERENT AS IT WAS THE ASSESSMEN T C ONSEQUENT TO THE SURVEY U/S 133A WHICH WAS CONDUCTED AT THE BUSINESS PREMISES ON 05/03/2009. A HUGE DISCREPANCY IN THE QUANTITY OF STOCK WAS FOUND VIS - A - VIS STOCK RECORDED IN BOOKS. HENCE THE ADDITION IN THE A. Y. 2009 - 10 WAS TOTALLY BASED ON THE FACTS ARID R ECORDS IN POSSESSION WITH THE DEPARTMENT AS WELL AS THE STATEMENTS RECORDED DURING THE SURVEY ACTION. BUT AS FAR AS THE CASE OF THE A.Y. 2011 - 12, WHICH IS BEFORE ME, IS CONCERNED, THE A.O. HAS MADE ADDITION ON THE BASIS OF THE FIGURES OF G.P. PERCENTAGE FO R THE TWO PREVIOUS YEARS AND ONE SUBSEQUENT YEAR. AS THE APPELLANT HAS ACCEPTED THE ADDITIONAL INCOME FOR THE PRECEDING YEARS CONSEQUENT TO THE SEARCH, HAS NATURALLY SHOWN INCREASE IN THE G.P., WHEREAS THE APPELLANT HAS SHOWN THE G.P. OF 4.23% FOR THE CURR ENT YEAR. THE A.O. HAS TAKEN INTO CONSIDERATION THE FOLLOWING FIGURES OF G.P.: - A.Y. 2012 - 13 2011 - 12 2010 - 11 2009 - 10 G.P. RATIO 11.86% 4.23% 6.64% 4.50% THE AVERAGE G.P., OF ABOVE THREE YEARS EXCLUDING A.Y., 2011 - 12 COMES TO 6.807% WHICH THE A.G. HAS CONSIDERED AS 6.81% AND MADE ADDITIONS ON THIS BASIS. I DO NOT AGREE WITH THE METHOD ADOPTED BY THE A.O. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE VIEW THAT AO WAS NOT JUSTIFIED IN DISALLOWING RS.48, 27,215/ - . THEREFORE I HEREBY DECIDE TO TAKE THE G.P. RATIO, FOR THE PURPOSE OF ADDITION, AS AN AVERAGE OF THE G.P. RATIO FOR AY. 2009 - 10 AND 2010 - 11, I.E. OF 6.64% AND 4.50%, WHICH COMES TO BE AT 5.57%. THE APPELLANT HAS ALREADY OFFERED THE G.P. RATIO AT 4.23%. IN VIEW TO MEET BOTH THE ENDS OF THE JUSTICE, I HEREBY DECIDE FOR THE ADDITION IN G.P. PERCENTAGE OF 1.34% (5.57 - 4.23). THUS THE ADDITION TO THE TUNE OF RS.25,56,706/ - (1.34% OF RS.19,07,99,008/ - ) IS CONFIRMED ON THIS ISSUE AND THE APPELLANT HAS B EEN GIVEN A RELIEF OF RS.22,70,509/ - . HENCE THE GROUND NO.1 OF THE APPELLANT HAS BEEN PARTLY ALLOWED. 5 ITA NO. 1855 /PUN/20 16 A.Y. 2011 - 12 5. WE ARE OF THE CONSIDERED VIEW WHILE GOING THROUGH THE ORDERS OF THE SUB - ORDINATE AUTHORITIES SPECIFICALLY THE FINDINGS OF THE LD. CIT(APPEAL) THAT H E CONSIDERED ALL PRACTICAL ASPECTS INVOLVED IN THIS ISSUE WHILE DECIDING THE MATTER AND HAS BEEN MORE THAN REASONABLE IN PROVIDING THE SAID RELIEF TO THE ASSESSEE AS PER PARA 8 OF HIS ORDER. THEREFORE, THE FINDINGS GIVEN BY THE LD. CIT(APPEAL) DOES NOT CA LL FOR A NY FURTHER INTERFERENCE AND IS HEREBY UPHELD. GROUND NO.1 RAISED IN APPEAL BY THE ASSESSEE IS DISMISSED. 6. GROUND NO.2 IS IN RESPECT TO THE ADDITION MADE BY INVOKING THE PROVISION OF SECTION 40A(2)(B) OF THE ACT FOR THE SALARY PAID TO THE THREE SONS OF THE ASSESSEE FOR THE SERVICES RENDERED BY THEM DURING THE COURSE OF BUSINESS ACTIVITIES. 7. THE BRIEF FACTS WITH REGARD TO THIS GROUND ARE THAT THE ASSESSEE HAD PAID SALARY AND BONUS OF RS.5,04,000/ - TO HIS THREE SONS I.E.RS.1,68,000/ - EACH. THE ASSESSING OFFICER HAD DISALLOWED 64% OF RS.5,04,000/ - I.E. RS.3,22,560/ - AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE ON THE GROUND THAT PROPER DOCUMENTARY EVIDENCES WERE NOT SUBMITTED BY THE ASSESSEE IN RESPECT OF THE WORK DONE BY THESE PERSONS. 8. THE LD. CIT(APPEAL) VIDE PARA 9 OF HIS ORDER CONSIDERED DISALLOWANCE OF 25% OF SALARY AS REASONABLE AND CONFIRMED THE ADDITION OF RS.1,26,000/ - OUT OF THE ADDITION MADE OF RS.3,03,120/ - MADE BY THE ASSESSING OFFICER. THE ASSESSEE, THEREFORE, WAS GIVEN RELIEF OF RS.1,96,560/ - . 9. WE ARE OF THE CONSIDERED VIEW THAT THE SALARY AND BONUS PAID PER ANNUM TO EACH OF THE SON OF RS.1, 6 8,000/ - I.E. RS.14,000/ - PER MONTH INCLUDING BONUS. CONSIDERING THESE FACTS, IT WAS ASKED TO THE LD. DR WHETHER 6 ITA NO. 1855 /PUN/20 16 A.Y. 2011 - 12 THIS AMOUNT OF RS.14,000/ - PAID AS SALARY PER MONTH TO EACH SONS FOR DOING BUSINESS WORK OF THE ASSESSEE, WHETHER IT WAS UNREASONABLE. THE LD. DR SUBMITTED THAT THE SALARY PAID FOR THE WORK DONE WAS REASONABLE. THAT IT IS ALSO NOT THE CASE OF THE DEPARTMENT NEITHER IN THE ORDER OF ASSESSING OFFICER NOR IN THE ORDER OF THE LD. CIT(APPEAL) THAT THE ASSESSEES SONS WERE NOT AT ALL INVOLVED IN THE BUSINESS OF THE ASSESSEE OR THAT THERE WAS NO WORK DONE BY THEM IN RESPECT OF THE BUSINESS OF THE ASSESSEE. THAT B OTH, THE ASSE SSING OFFICER AND THE LD. CIT(APPEAL) HAS ESTIMATED THE ADHOC DISALLOWANCE WITHOUT SPECIFYING REASONS FOR SUCH DISALLOWANCE WITHOUT MAKING SPECIFIC EXAMINATION OF FACTS AND THEREFORE, IS UNSUSTAINABLE IN THE EYES OF LAW. CONSIDERING THE TOTALITY OF FACTS A ND CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE LD. CIT(APPEAL) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION ON THIS GROUND FROM THE HANDS OF THE ASSESSEE. GROUND NO.2 RAISED IN APPEAL BY THE ASSESSEE IS ALLOWED. 10. GROUND NO. 3 PERTAINS TO THE ADHOC DISALLOWANCES (I) RS.23,105/ - ON TELEPHONE EXPENSES (II) RS.30,360/ - ON VEHICLE EXPENSES AND (III) 1,38,017/ - ON DEPRECIATION. 11. THAT FOR ALL THESE EXPENSES, IT WAS FOUND BY THE REVENUE AUTHORITIES THAT SINCE PROPER DOCUMENTARY EVIDENCES WER E NOT MAINTAINED BY THE ASSESSEE, THE PERSONAL USAGE ELEMENT COULD NOT BE RULED OUT AND HENCE THESE ADDITIONS WERE MADE AT THE RATE OF 10% BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEAL). 12. AT THE VERY OUTSET, THE LD. DR SUBMITTED THAT TH ESE ADDITION S ARE MADE ON AD HOC BASIS AND CONSIDERING THE SMALLNESS OF THE AMOUNT IF THEY ARE DELETED HE DOES NOT HAVE ANY OBJECTION. 7 ITA NO. 1855 /PUN/20 16 A.Y. 2011 - 12 13. WE FIND THAT ONLY ON THE BASIS OF THE FACT THAT THERE CAN BE SOME ELEMENT OF PERSONAL USAGE OF THESE EXPENSES, 10% ADHOC DISALLOWANCE WAS MADE BY THE REVENUE AUTHORITIES. WE WOULD HAVE APPRECIATE D THE DISALLOWANCE IF THE REVENUE COULD HAVE BROUGHT FORWARD SOME SPECIFIC EVIDENCES OF SUCH PERSONAL USAGE BY THE ASSESSEE. THIS FACT IS NOT THERE IN THE ENTIRE EXERCISE NEITHER IN THE ORDER OF THE ASSESSING OFFICER NOR IN THE ORDER OF THE LD. CIT(APPEAL). SANS THIS, NATURE OF DISALLOWANCE IS ADHOC ONLY WHICH IS NOT PERMISSIBLE WITHIN THE PURVIEW OF TAXING STATUTE S AND ALSO CONSIDERING THE SUBMISSIONS OF THE LD. DR AS REGARDS THE SMALLNESS OF THE AMOUNT INVOLVED AND AS SUCH IT WILL HAVE A NEGLIGIBLE OR NO IMPACT ON REVENUE COLLECTION, I N VIEW OF THESE FACTS , WE SET ASIDE THE ORDER OF THE LD. CIT(APPEAL) AND DIRECT THE ASSESSING OFFICER T O DELETE THE ADDITION ON TH ESE HEADS FROM THE HANDS OF THE ASSESSEE. GROUND NO.3 RAISED IN APPEAL BY THE ASSESSEE IS ALLOWED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRO NOUNCED ON 15 TH DAY OF DECEMBER , 20 20 . SD/ - SD/ - R.S.SYAL PARTHA SARATHI CHAUDHURY VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 15 TH DECEMBER , 2020. SB 8 ITA NO. 1855 /PUN/20 16 A.Y. 2011 - 12 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEAL) - 2, NASHIK. 4. THE CIT - 2, NASHIK. 5 . , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER, // TRUE COPY // / PRIVATE SECRETARY , / ITAT, PUNE . 9 ITA NO. 1855 /PUN/20 16 A.Y. 2011 - 12 DATE 1 DRAFT DICTATED ON 1 1 . 12 .2020 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 1 1.12 .2020 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER