M/s GC Jena, Bhubaneswar V. ITO, Bhubaneswar

ITA 237/CTK/2011

• Counselvise Citation: 23722114 RSA 2011
• Duration Of Justice: 3 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 27-04-2011
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: SUNIL MISHRA
• Keywords: Depreciation
• Section: 68; 144; 44AD; 40(a)(ia)

Judgement Text

IN THE INCME 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 S . 237 AND 238/CTK/2011 (ASSESSMENT YEAR S 2005 - 06 AND 2006 - 07) M/S.G.C.JENA, S AMEI GADIA, PALASUNI, BHUBANESWR PAN: AAGPFG 3225 R VERSUS INCOME - TAX OFFICER, WARD 2(2), BHUBANESWAR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI SUNIL MISHRA, AR FOR THE RESPONDENT SHRI A.BHATTACHARJEE, DR ORDER SHRI K.K.GUPTA, ACCOUNTANT MEMB ER : THESE APPEALS FOR THE AYS 2005 - 06 AND 2006 - 07 FOR THE SAME ASSESSEE ARISE OUT OF THE SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ON HAVING CONSIDERED THE ORDERS OF THE ASSESSING OFFICER PASSED U/S. 14 FOR BOTH THE ASSESSMENT YE ARS. 2. VARIOUS GROUNDS HAVE BEEN RAISED BY THE ASSESSEE BY INDICATING THE ARBITRARY MANNER IN WHICH THE PURPORTED BEST JUDGMENT ORDERS HAVE BEEN PASSED U/S.144 WHEN CONSIDERATION OF THE FACTS AS WERE AVAILABLE TO THE ASSESSING OFFICER ON THE BASIS OF FINA NCIAL STATEMENTS DULY AUDITED U/S.44AB HAVE BEEN INTERPOLATED, MISINTERPRETED RESULTING IN TAXATION OF INCOME WHICH OUGHT NOT TO BE TAXED BY WAY OF DISALLOWANCE OF EXPENSES. CONSEQUENTLY DISALLOWANCE OF REMUNERATION AND INTEREST PAID TO PARTNERS CLAIMED U/ S.40(B) HAS BEEN MADE WITHOUT BRINGING ON RECORD AS TO HOW NON - MAINTENANCE OF BOOKS OF ACCOUNT COULD LEAD TO FINDING THAT THE INCOME STATED IN THE BOOKS OF ACCOUNTS OTHERWISE STOOD ACCEPTED BY THE ASSESSING OFFICER. 3. WE HAVE HEARD THE PARTIES AT LENGTH. IN VIEW OF THE SHORT IS SUE TO BE CONSIDERED BY US AND AS ULTIMATELY SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE FOR THE ASSESSMENT YEAR 2006 - 07 WHEN ASSESSMENTS HAVE BEEN FRAMED U/S.1 4 4 ON A SOLITARY DATE OF HEARING WHEN ALSO THE ORDER OF THE ASSES SMENT ORDER WAS PASSED AND APPEALED AGAINST BEFORE THE FIRST APPELLATE ITA NOS.237 AND 238/CTK/2011 2 AUTHORITY WHEN NONE COULD APPEAR ON BEHALF OF THE ASSESSEE APPELLANT, THE LEARNED CIT(A) PARTLY ALLOWED THE ASSESSEES APPEAL BY UPHOLDING THE DI S ALLOWANCE ON THE DEEMING PROVISIONS OF SECTION 40(A)(IA) WHEN NO MATERIAL EITHER HAS BEEN PRODUCED BEFORE THE ASSESSING OFFICER OR BEFORE THE LEARNED CIT(A) WHETHER THE ASSESSEE WAS NOT TO B E VISITED FOR DEDUCTION OF TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194C. THE PRAYER OF THE LEARNED COUNSEL FOR THE ASSESSEE ON THIS ISSUE FOR RESTORING TO THE LEARNED CIT(A) THEREFORE IS TO BE ACCEPTED. IN SO FAR AS THE ASSESSING OFFICER PROCEEDINGS UNDER THE PROVISIONS OF SECTION 144 HAVING ACCEPTED THE TAX AUDIT REPORT WAS TO CONSIDER THE AUDITORS DIS CLOSURE THAT NO PAYMENTS ATTRACT ED THE PROVISIONS OF SECTION 19 4C FOR TAX DEDUCTION AT SOURCE, T HE ASSESSING OFFICER DID NOT ALLOW SALARY AND INTEREST TO THE PARTNERS BY ACCEPTING THE N ET PROFIT AS PER THE PROFIT & LOSS ACCOUNT OUGHT TO HAVE ALLOWED THE SA LARY AND INTEREST IN VIEW OF THE FACT THAT HE HAS DISALLOWED THE EXPENSES UNDER THE PROVISIONS OF SECTION 40(A)(IA) . IN OTHER WORDS, THE ASSESSMENT CANNOT BE SAID TO HAVE BEEN MADE FOR THE CHANGE OF STATUS CONSEQUENCE TO HAVING PASSED THE ORDER US/.144. I N THE INTEREST OF JUSTICE, WE RESTORE THE ISSUE TO THE FILE OF THE LEARNED CIT(A) TO ADJUDICATE THE ISSUE ON MERITS WHEN INSPITE OF NON APPEARANCE BY THE ASSESSEE APPELLANT BEFORE HIM, HE WAS ABLE TO PART ALLOW THE ASSESSEES APPEAL O N THE BASIS OF UNDISPU TED FACTS BROUGHT ON RECORD BY THE LEARNED ASSESSING OFFICER. THE LEARNED CIT(A) COULD NOT HAVE MISINTERPRETED THE NOTING OF THE ASSESSING OFFICER THAT THE CASE WAS TAKEN UP ON THE LAST DATE OF LIMITATION IN ABSENCE OF EITHER THE ASSESSEE APPELLANT OR THE ASSESSING OFFICER AS HAS BEEN PERUSED BY US IN HIS ORDER. 4. THE APPEAL FOR THE ASSESSMENT YEAR 2006 - 07 IS THEREFORE, CONSIDERED ALLOWED FOR STATISTICAL PURPOSES . ITA NOS.237 AND 238/CTK/2011 3 5. FOR THE ASSESSMENT YEAR 2005 - 06, AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE INCLINED TO HOLD THAT THE ASSESSING OFFICER PROCEEDED TO CONSIDER THE CASE OF THE ASSESSEE EXPARTE BY OBSERVING MATERIAL WHICH COULD NOT HAVE LED TO HIS HOLDING A VIEW THAT 12% OF THE GROSS TURNOVER SHOULD BE BROUGHT TO TAX INSOFAR AS HE PROCEEDED TO HOLD THAT THE INTEREST AND SALARY TO THE PARTNERS COULD NOT BE ALLOWED BY ESTIMATING THE INCOME. THE LEARNED COUNSEL FOR THE ASSESSEE BEFORE US HAS SUBMITTED THAT AUDITED FINANCIAL STATEMENT S HANE BEEN RELIED UPON BY THE ASSESSING OFFICER DULY AUDITED WHICH CERTIFY THA T THE BOOKS OF ACCOUNTS WERE MAINTAINED AND WERE RELIED UPON BY THE AUDITOR FOR CERTIFYING THAT THE BOOK RESULTS SHOWN ARE TRUE AND CORRECT CANNOT BE LOST SIGHT OF INSOFAR AS IT IS ONLY AN OPINION OF THE ASSESSING OFFICER THAT THE SALES TAX WHICH HAS BEEN REIMBURSED BY THE CONTRACTEES AGAINST MATERIAL UTILISED BY THE ASSESSEE IN RENDERING THE CONTRACT DID NOT HAVE ANY ELEMENT OF PROFIT. IN ANY CASE, THERE ARE NINE PARTNERS AND THE PARTNERSHIP DEED PROVIDED THAT THE PARTNERS WERE TO BE REIMBURSED INTEREST @1 2% IN THE CAPITA L CONTRIBUTED BY THEM. THE ASSESSING OFFICER MERELY DISA LLOWED THE SAME IN CONSEQUENCE TO PASSING THE BEST JUDGMENT ASSESSMENT UNDER THE PROVISIONS OF SECTION 144. SIMILARLY FOUR WORKING PARTNERS WERE PAID REMUNERATION WHICH HAS ALSO BEEN DISALLOWED THEREFORE CONTRADICTS THE VERY PROVISIONS OF THE I.T.ACT TO THE EXTENT THAT EITHER THE BOOKS OF ACCOUNT WERE NOT MAINTAINED OR VOUCHERS WERE NOT PRODUCED , THE ESTIMATION OF INCOME AT A CERTAIN PERCENTAGE WOULD BE DEEMED TO HAVE BEEN CONSIDERED O F ALLOWING DEPRECIATION AND INTEREST AND REMUNERATION TO THE PARTNERS HAS BEEN MISINTERPRETED UNDER THE PROVISIONS OF SECTION 144. HE POINTED OUT THAT THE ASSESSING OFFICER HAS TAKEN THE STATUS OF THE ASSESSEE AS FIRM THEREFORE WAS TO BE CONSIDERED IN IT S RIGHT EARNEST THAT THE INTEREST IS INTEGRAL PART OF T HE BUSINESS AND SALARY I S PAID TO THE PARTNERS WHO WORK FOR ITA NOS.237 AND 238/CTK/2011 4 THE FIRM. BOTH THESE ITEMS ARE EXPENDITURES TO BE CONSIDERED FOR ACCEPTING INCOME @8% AND NOT 12% AS PER THE PROVISIONS OF THE I.T.ACT. HE PR AYED THAT THIS DIFFERENCE OF 4% EITHER MAY BE ACCEPTED AS GENUINE EXPENSES OR MAY BE CONSIDERED UNDER THE PROVISIONS OF SECTION 44AD WHEN THE VERY PROCEEDINGS HAVE BEEN TAKEN U/S.144. HE SUBMITTED THAT ALL THE PARTNERS HAVE FILED THEIR INDIVIDUAL RETURNS I NDICATING THE AMOUNT OF INTEREST AND SALARY EARNED BY THEM WHICH WILL HAVE TO BE GIVEN EFFECT TO SUBSEQUENT TO THE ORDER OF THE ASSESSING OFFICER U/S.144. INSOFAR AS THE LEARNED CIT(A) WAS CONSIDERATE ENOUGH TO HOLD THE ADDITION COMPUTED BY THE ASSESSING O FFICER U/S.68 FROM 6, 31,238 TO 74,082 ON THE BASIS OF FACTS AND SUBMISSIONS BROUGHT ON RECORD WHICH CLEARLY INDICATE THAT THE ASSESSING OFFICER HAD NOT ACCEPTED THE CONTENTION OF THE ASSESSEE OF HAVING DISCHARGED THE ONUS OF ESTABLISHING THE IDENTITY, CREDITWO RTHINESS AND GENUINENESS OF THE TRANSACTIONS. HE SUBMITTED THAT THE LEARNED CIT(A) RIGHTLY OBSERVED THAT ONCE THE ESTIMATION IS RESORTED TO BY THE ASSESSING OFFICER HE CANNOT MAKE SEPARATE ADDITION BY WAY OF DISALLOWING THE CASH CREDITS UNDER THE PROVISION S OF SECTION 68 WHICH IN ITSELF ARE TO BE EXPLAINED BY THE ASSESSING OFFICER AND NOT BY THE ASSESSEE. HE PRAYED THAT THE SUM OF 74,082 MAY KINDLY BE DIRECTED TO BE DELETED. 6. THE LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. HAVING HEARD BOTH THE PARTIES AND PERUSING THE ORDERS OF THE LOWER AUTHORITIES, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSMENT ORDER SUFF ERS FROM INFIRMITY TO THE EXTENT THAT THE ASSESSING OFFICER HAVING ESTIMATED INCOME ON THE BASIS OF GROSS INCOME WAS NOT PROCEEDING TO CONSIDER THE CASE OF THE ASSESSEE U/S.144. SO MUCH SO HE HAS NOTED THAT THE SALES TAX WHICH WAS REIMBURSED BY THE CONTRAC TEES DID NOT INVOLVE THE EARNING OF INCOME OF 12%. HAVING SAID SO HE WAS GUIDED BY THE FACT THAT THE PROVISIONS OF SECTION 44AD WERE TO BE APPLIED WHEN LAW PROVIDES THAT ESTIMATING THE INCOME AT 8% ITA NOS.237 AND 238/CTK/2011 5 OF THE GROSS TURNOVER WHEN THE DEPRECIATION AND SALARY AN D INTEREST TO PARTNERS IS DEEMED TO BE ALLOWED. THE LEARNED CIT(A) THEREFORE, WAS CONSIDERATE ENOUGH TO GRANT HUGE RELIEF INSOFAR AS THE CASH CREDITS ARE CONCERNED LEAVING A RESIDUAL AMOUNT OF 74,082 WHICH FURTHER COULD NOT BE BROUGHT TO TAX IN VIEW OF T HE FACT THAT THE DIFFERENCE BETWEEN 8% AND 12% AS PROVIDED BY THE LAW COULD BE CONSIDERED AS EXPLAINED BY THE ASSESSEE. THE SAME IS DIRECTED TO BE DELETED. HAVING SAID SO, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE RAJASTHAN HIG H COURT IN THE CASE OF CIT V. G.K.CONTRACTOR, REPORTED IN MANU/RH/0486/2009 (COPY FURNISHED AND PLACED ON RECORD), ON IDENTICAL FACTS WERE ADJUDICATED UPON WHEN CASH CREDIT U/S.68 WITHOUT INVOKING THE PROVISIONS OF SECTION 145(3) PASSED U/S.144 ON ESTIMATI ON OF INCOME FROM GROSS RECEIPTS OF A CONTRACTOR WAS HELD REASONABLE AT 9%. AS NO CONTROVERTING MATERIAL HAS BEEN FURTHER ADVANCED BY THE LEARNED DR AND AFTER HAVING PERUSED THE FINANCIAL STATEMENTS AND AUDIT REPORT OF THE AUDITORS, WE ARE INCLINED TO HOLD THAT THE INCOME WHICH THE ASSESSEE RETURNED COULD ONLY BE ESTIMATED AT 9% WHEREFROM THE SALARY AND INTEREST TO THE PARTNERS AS CLAIMED BY THE ASSESSEE AFTER COMPUTING THE NET PROFIT IS TO BE ALLOWED. WE DIRECT ACCO RDINGLY. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2005 - 06 IS CONSIDERED PARTLY ALLOWED . PRONOUNCED IN OPEN COURT ON DT. 5 TH AUGUST, 2011 S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 5 TH AUGUST, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NOS.237 AND 238/CTK/2011 6 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: M/S.G.C.JENA, SAMEI GADIA, PALASUNI, BHUBANESWR 2. THE RESPONDENT: INCOME - TAX OFFICER, WARD 2(2), BHUBANESWAR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.