Sreenivasa Mechanical Works, Nalgonda, Secunderabad V. ITO, Ward-1, Suryapet, Suryapet

ITA 252/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6068 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 07-03-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Rejection of books of accounts; Depreciation
• Section: 32

Judgement Text

1 ITA.NO.252/HYD/2016 M/S. SREENIVASA MECHANICAL WORKS, KODAD, NALGONDA DISTRICT. IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA.NO.252/HYD/2016 ASSESSMENT YEAR 2011-2012 M/S. SRINIVASA MECHANICAL WORKS, KODAD, NALGONDA DIST., PAN AANFS8975R VS. THE INCOME TAX OFFICER WARD-1, SURYAPET. (APPELLANT) (RESPONDENT) FOR ASSESSEE : -NONE- FOR REVENUE : SHRI K.J. RAO DATE OF HEARING : 01.03.2017 DATE OF PRONOUNCEMENT : 10.03.2017 ORDER PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE-FIRM IS DIRECTED AGAIN ST THE ORDER PASSED BY THE CIT(A)-3, HYDERABAD AND IT PERTAI NS TO THE A.Y. 2011-2012. THOUGH THE ASSESSEE RAISED SEVERAL GROUND S, IN THE GROUNDS OF APPEAL FILED BEFORE US, THE LIMITED ISSUE IS WITH R EGARD TO ALLOWABILITY OF DEDUCTION UNDER SECTION 40(B) AND SECTION 32 OF THE INCOME TAX ACT, 1961, AFTER ESTIMATING THE INCOME/PROFIT; EVEN AFTER E STIMATING INCOME STATUTORY DEDUCTIONS ARE PERMISSIBLE IN THE LIGHT OF C LARIFICATION ISSUED BY CBDT VIDE CIRCULAR NO.29-D DATED 31.08.1963. 2. THE ASSESSEE IS A DEALER IN MAHINDRA & MAHINDRA TRACTORS. FOR THE YEAR UNDER CONSIDERATION, IT DECLARED TOTAL INCO ME OF RS.7,24,170. THE CASE WAS SELECTED FOR SCRUTINY IN C ASS. THE ASSESSEE 2 ITA.NO.252/HYD/2016 M/S. SREENIVASA MECHANICAL WORKS, KODAD, NALGONDA DISTRICT. WAS CALLED-UPON TO FURNISH BOOKS OF ACCOUNT AND ALSO INFORMATION AS CALLED FOR. SINCE THE ASSESSEE COULD NOT PRODUCE ALL THE VOUCHERS FOR THE EXPENSES CLAIMED, THE A.O. REJECTED THE BOOKS OF ACCO UNT UNDER SECTION 145(3) OF THE I.T. ACT, 1961 AND ESTIMATED NET PROFIT A T 1% OF THE TOTAL TURNOVER WHICH WORKED-OUT TO RS.26,63,430. ACCORDING TO THE A.O. THE ESTIMATION IS CLEAR OF ALL EXPENSES INCLUDING PARTNERS REMUNERATION, INTEREST AND DEPRECIATION. IN THIS REGARD A.O. NOTICED THAT IDENTICAL ISSUE WAS DECIDED BY THE CIT(A)-VI, HYDERABAD, VIDE ORDER DATED 27.08.2012, IN THE CASE OF V.V.C. TRACTORS, NALGONDA WHICH IS ALSO IN THE SAME LINE OF BUSINESS. 2.1. ACCORDING TO THE ASSESSEE PARTNERS REMUNERATION IS ALLOWABLE EVEN AFTER ESTIMATING THE INCOME AND THEREFOR E, IT PREFERRED AN APPEAL BEFORE THE CIT(A). IT WAS CONTENDED THAT THE R ETURN FILED BY THE ASSESSEE IS BASED ON BOOKS OF ACCOUNT DULY AUDITED UNDER SECTION 44AB OF THE ACT. IT WAS ALSO CONTENDED THAT THE ASSESSEE C ARRIED ON ITS BUSINESS IN VILLAGES WITH THE FARMERS AND THEREFORE, M AINTAINING VOUCHERS FOR ALL THE EXPENSES IS A DIFFICULT JOB IN W HICH EVENT THE A.O. OUGHT TO HAVE TAKEN INTO CONSIDERATION THE NET PROFIT ADM ITTED IN THE EARLIER YEARS ON A COMPARATIVE BASIS INSTEAD OF REJEC TING THE BOOKS. THE ASSESSEE FIRM ALSO RELIED UPON THE DECISION OF ITAT IN THE CASE OF VISHAL INFRASTRUCTURE LTD., 104 ITD 537 WHEREIN IT WAS HELD TH AT MERELY BECAUSE CERTAIN VOUCHERS ARE SELF-MADE BOOKS OF ACCO UNT SHOULD NOT BE REJECTED. IT WAS ALSO CONTENDED THAT AS PER CBDT CIRCUL AR NO.29-D, DEPRECIATION SHOULD BE SEPARATELY DEDUCTED FROM THE ES TIMATED PROFIT. SIMILARLY EVEN INTEREST PAID TO THE PARTNERS SHOULD ALS O BE DEDUCTED FROM THE ESTIMATED INCOME. 3. THE LD. CIT(A) REJECTED THE CONTENTION OF THE ASSES SEE BY OBSERVING THAT THE A.O. HAVING ESTIMATED THE NET PROFIT THERE IS NO NEED 3 ITA.NO.252/HYD/2016 M/S. SREENIVASA MECHANICAL WORKS, KODAD, NALGONDA DISTRICT. TO GRANT FURTHER DEDUCTIONS TOWARDS DEPRECIATION, INTERE ST AND REMUNERATION TO PARTNERS, PARTICULARLY IN VIEW OF THE FA CT THAT IF SUCH CLAIM IS ALLOWED THE ASSESSED INCOME WOULD FALL BELO W THE RETURNED INCOME. THE OPERATIVE PORTION OF THE ORDER IS EXTRACTED FOR IMMEDIATE REFERENCE : 4.4. THE INFORMATION ON RECORD IS CAREFULLY CONSI DERED. THE APPELLANT IS AN AUTHORISED DEALER OF MAHINDRA TRACT ORS IN KODAD MANDAL, NALGONDA DISTRICT. THE APPELLANT EXPRESSED DIFFICULTY IN MAINTAINING PROPER VOUCHERS IN SUPPORT OF THE EXPEN SES INCURRED AS IT IS LOCATED IN MOFUSSIL AREA AND HAS TO DEAL WITH THE F ARMERS. THE A.O. FOR THE REASONS MENTIONED IN THE PRECEDING PARAS CLEARL Y HELD THAT IN THE ABSENCE OF VERIFIABLE VOUCHERS IN SUPPORT OF EXPENS ES CLAIMED, THE PROFITS RETURNED BY THE ASSESSEE ARE NOT RELIABLE. THE APPE LLANT DEBITED VARIOUS UNVERIFIABLE EXPENSES UNDER THE HEADS, 'VEHICLE MAI NTENANCE', SHOWROOM EXPENSES', 'WELFARE, 'ADVERTISEMENT', 'D EMO EXPENSES' ETC. FURTHER, THE DECISION OF HONBLE ITAT IN CA SE OF VISHAL INFRASTRUCTURE LIMITED (CITED SUPRA) IS NOT APPLICA BLE TO THE INSTANT CASE. IN THE CASE OF VISHAL INFRASTRUCTURE LIMITED, THE A .O. REJECTED THE BOOKS OF ACCOUNTS ON THE GROUND OF NON-AVAILABILITY OF VO UCHERS FOR EXPENSES INCURRED BY SUB-CONTRACTORS. MOREOVER, THE ESTIMATI ON OF INCOME AT 1% OF THE TURNOVER CANNOT BE CONSIDERED AS UNREASONABLE. FURTHER, IN IDENTICAL CIRCUMSTANCES, THE CIT(APPEALS)-VI, HYDERABAD IN CA SE OF M/S. VVC TRACTORS, NALGONDA DISTRICT, DIRECTED THE A.O. TO E STIMATE THE NET PROFIT AT 1% OF GROSS TURNOVER. FURTHER, THE APPELLANTS PLEA THAT DEPRECIATION, INTEREST AND REMUNERATION TO PARTNERS IS TO BE ALLO WED FROM SUCH ESTIMATED INCOME CANNOT BE ACCEPTED FOR THE SIMPLE REASON THAT, IF SUCH EXPENSES ARE ALLOWED, THE ASSESSED INCOME WOULD FAL L BELOW THE RETURNED INCOME. FURTHER, THE A.O. CATEGORICALLY OB SERVED THAT ESTIMATION OF INCOME AT 1% ON GROSS TURNOVER IS CLEAR OF ALL E XPENSES, INCLUDING PARTNERS REMUNERATION, INTEREST AND DEPRECIATION. THEREFORE, I CONSIDER IT IS NOT NECESSARY TO INTERFERE WITH THE REASONABLE E STIMATE OF INCOME MADE BY THE A.O. THEREFORE, ALL THESE GROUNDS OF APPEAL ARE DISMISSED. 4. FURTHER AGGRIEVED ASSESSEE IS IN APPEAL BEFORE U S. NONE APPEARED FOR THE ASSESSEE. THOUGH THE NOTICES WERE SE NT FROM TIME TO TIME (IN FACT FRESH NOTICE WAS SENT BY RPAD FIXING THE CASE FOR HEARING ON 1 ST MARCH, 2017) NONE APPEARED FOR THE ASSESSEE. WE, THE REFORE, PROCEED TO DISPOSE OF THE APPEAL EX-PARTE, QUA THE ASS ESSEE. WE HAVE ALSO HEARD THE LD. D.R. AND CAREFULLY PERUSED THE REC ORD. 4 ITA.NO.252/HYD/2016 M/S. SREENIVASA MECHANICAL WORKS, KODAD, NALGONDA DISTRICT. 5. HERE IS THE CASE WHERE THE PROFIT IS ESTIMATED BY THE A.O, IN THE ABSENCE OF MAINTENANCE OF PROPER BOOKS, @ 1% OF TH E TOTAL TURNOVER. IT CLEARLY INDICATES THAT THE ESTIMATION OF 1% IS CLEAR O F ALL EXPENDITURE INCLUDING DEPRECIATION, PARTNERS REMUNERATION. ORDINA RILY IN THIS LINE OF BUSINESS THE GROSS PROFIT WOULD BE HIGHER THAN WHAT IS ESTIMATED BY THE A.O, IF HE WAS TO SEPARATELY ALLOW DEPRECIATION AND R EMUNERATION; BUT HE PREFERRED TO ESTIMATE NET PROFIT ONLY IN WHICH EVEN T SEPARATE CLAIM OF DEPRECIATION ETC., IS NOT MAINTAINABLE. IF DEDUCTIONS HA VE TO BE ALLOWED SEPARATELY THEN THE A.O. WOULD HAVE TO ESTIMATED THE INC OME AT A HIGHER PERCENTAGE. AS RIGHTLY POINTED OUT BY THE LD. CIT(A), IF SEPARATE DEDUCTIONS WOULD HAVE TO BE ALLOWED, THE NET INCOME WO ULD BE LESS THAN WHAT IS DECLARED BY THE ASSESSEE WHICH IS ALSO ONE OF THE FACTORS TO INDICATE THAT THE A.O. HAD TAKEN INTO CONSIDERATION ONLY N ET PROFIT AND NOT THE GROSS PROFIT. AT ANY RATE, NONE APPEARED FOR TH E ASSESSEE AND NO MATERIAL WHATSOEVER, INCLUDING CASE LAW, WAS PLACED BEFORE US TO SHOW THAT THE NET PROFIT ESTIMATED BY THE ASSESSEE, CLEAR OF A LL OTHER EXPENDITURE, IS UNREASONABLE. UNDER THESE CIRCUMSTANCE S, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD. CIT(A) . 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.03.2017. SD/- SD/- (B. RAMAKOTAIAH) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED 10 TH MARCH, 2016 VBP/- 5 ITA.NO.252/HYD/2016 M/S. SREENIVASA MECHANICAL WORKS, KODAD, NALGONDA DISTRICT. COPY TO 1. M/S. SREENIVASA MECHANICAL WORKS, KODAD, NALGOND A DISTRICT. C/O. SHRI Y.V. BHANU NARAYAN RAO, CHARTERED ACCOUNTAN T, D.NO.10-2-274/C/2, FIRST FLOOR, NEAR MAHARAJ BAKERY, MISRA COMPOUND, WEST MAREDPALLY, SECUNDERABAD 500 026. 2. THE INCOME TAX OFFICER, WARD-1, SURYAPET. 3. CIT(A)-3, HYDERABAD. 4. PR. CIT-3, HYDERABAD 5. D.R. ITAT B BENCH, HYDERABAD 6. GUARD FILE.