M/s Sri Vijayalakshmi Minerals Trading Company, Hyderabad V. ACIT,Circle2(3), Hyderabad

ITA 257/HYD/2014

• Counselvise Citation: 25722514 RSA 2014
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 20-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P SOMASEKHAR REDDY
• Keywords: Reopening of assessment; Depreciation; Tangible material; Reason to believe
• Section: 147; 148; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 257/HYD/2014 ASSESSMENT YEAR : 2004-05 M/S SRI VIJAYALAKSHMI MINERALS TRADING CO., HYDERABAD PAN AAIFS1460J ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 2(3), HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI VIJAY MEHTA REVENUE BY SHRI P. SOMA SEKHAR REDDY DATE OF HEARING 25-09-2014 DATE OF PRONOUNCEMENT 21-11-2014 O R D E R PER SAKTIJIT DEY, J.M.: THIS APPEAL OF ASSESSEE IS DIRECTED AGAINST ORDER D ATED 17/12/2013 PASSED BY THE LD. CIT(A)-III, HYDERABAD PERTAINING TO AY 2004-05. 2. ASSESSEE HAS RAISED FIVE GROUNDS. GROUND NO. 5 B EING GENERAL IN NATURE, DO NOT REQUIRE ANY SPECIFIC ADJU DICATION. IN GROUND NOS. 1 & 2 ASSESSEE HAS CHALLENGED THE VALID ITY OF PROCEEDING INITIATED U/S 147 OF THE ACT AND THE CON SEQUENT ORDER PASSED U/S 144 READ WITH SECTION 147 OF THE ACT. GR OUND NOS. 3 & 4 ARE ON THE MERITS OF THE ADDITION SUSTAINED BY LD. CIT(A) OUT OF ADHOC DISALLOWANCE MADE BY AO. 2 ITA NO 257/HYD/2014 M/S SRI VIJAYALAKSHMI MINERALS TRADING CO. 3. BRIEFLY THE FACTS ARE, ASSESSEE A PARTNERSHIP FI RM IS ENGAGED IN BUSINESS OF MANUFACTURE AND SALE OF BARY TES LUMPS AND POWDER. FOR THE AY UNDER DISPUTE, ASSESSEE FILE D ITS RETURN OF INCOME ON 01/11/2004 DECLARING TOTAL INCOME OF R S. 28,13,783. THE RETURN FILED BY ASSESSEE WAS PROCESSED U/S 143( 1) ON 11/11/04. SUBSEQUENTLY, ON 15/10/2010, AO ISSUED A NOTICE U/S 148 OF THE ACT CALLING UPON ASSESSEE TO FILE ITS RE TURN. AFTER COMPLYING TO THE NOTICE ISSUED U/S 148, ASSESSEE SO UGHT FOR THE REASONS FOR REOPENING OF ASSESSMENT AND AO ALSO COM MUNICATED THE GIST OF REASONS FOR REOPENING THE ASSESSMENT. 4. ASSESSEE DURING THE ASSESSMENT PROCEEDING, STRON GLY OBJECTED TO THE INITIATION OF PROCEEDING U/S 147 BY STATING THERE IS NO ESCAPEMENT OF INCOME AS ALLEGED BY AO AS NEITHE R SELF ASSESSMENT TAX WAS PAID OUT OF UNDISCLOSED INCOME N OR ANY ASSET WAS PURCHASED OUTSIDE THE BOOKS. ASSESSEE, TH EREFORE, REQUESTED AO TO DROP THE PROCEEDINGS. HOWEVER, AS A LLEGED BY AO IN THE ASSESSMENT ORDER, THOUGH A NUMBER OF NOTI CES WERE ISSUED TO ASSESSEE CALLING FOR VARIOUS INFORMATIONS AND DETAILS, ASSESSEE DID NOT RESPOND TO ANY ONE OF THEM. THEREF ORE, AO WAS COMPELLED TO COMPLETE THE ASSESSMENT ON THE BASIS O F INFORMATION AVAILABLE ON RECORD. AO NOTED THAT WHIL E EXAMINING THE RETURN OF INCOME FOR THE AY 2003-04, IT WAS NOT ICED THAT ASSESSEE HAS PAID SELF ASSESSMENT TAX OF RS. 4,16,7 83 ON 31/10/2003. HOWEVER, THE SAME WAS NEITHER PAID THRO UGH FIRMS ACCOUNT NOR THROUGH THE PARTNERS CAPITAL ACCOUNT. H E, THEREFORE WAS OF THE VIEW THAT SELF ASSESSMENT TAX WAS PAID O UT OF UNDISCLOSED INCOME OF THE FIRM. ACCORDINGLY, HE MAD E ADDITION OF RS. 4,16,783. FURTHER, AO NOTED THAT ASSESSEE HAS D EBITED AN AMOUNT OF RS. 9,79,426 TO THE PROFIT AND LOSS A/C T OWARDS LOSS ON 3 ITA NO 257/HYD/2014 M/S SRI VIJAYALAKSHMI MINERALS TRADING CO. SALE OF ASSETS WHICH WAS ADDED BACK TO INCOME IN TH E COMPUTATION OF INCOME. HOWEVER, AS PER DEPRECIATION STATEMENT, RS. 1,41,807 WAS THE LOSS ON SALE OF FIXED ASSETS W HICH WAS INCURRED ON SALE OF TWO FIXED ASSETS, NAMELY, OPEL ASTRA CAR AND TATA SUMO. AO THEREFORE WAS OF THE VIEW THAT THE EX CESS LOSS ON SALE OF ASSETS HAS RESULTED FROM SALE OF ASSETS WHI CH WERE NOT SHOWN IN THE BOOKS OF ACCOUNT IN AY 2004-05. HE, TH EREFORE, OPINED THAT THE DIFFERENCE OF RS. 8,37,619 IN LOSS ON SALE OF ASSET IS ATTRIBUTABLE TO SALE OF ASSETS IN THE BLOCK OF V EHICLES THAT WERE NOT SHOWN IN THE BOOKS OF ACCOUNT IN AY 2004-05. ON THE BASIS OF THE ALLEGED DIFFERENCE IN LOSS ON SALE OF ASSETS FOUND BY AO, HE COMPUTED THE VALUE OF ASSETS AT RS. 41,88,095. A FTER DISALLOWING THE DEPRECIATION ALLEGEDLY CLAIMED ON T WO CARS, AO ADDED AN AMOUNT OF RS. 42,16,457. APART FROM MAKING ADDITION ON THE BASIS OF REASONS RECORDED, AO ALSO PROCEEDED TO MAKE ADHOC DISALLOWANCE OF 25% AMOUNTING TO RS. 68,37,47 1, OUT OF THE EXPENDITURE OF RS. 2,73,44,888 CLAIMED BY ASSES SEE. ACCORDINGLY, AO PASSED THE ASSESSMENT ORDER ON 30/1 2/11. BEING AGGRIEVED OF ASSESSMENT ORDER, SO PASSED, ASS ESSEE PREFERRED APPEAL BEFORE LD. CIT(A) BY CHALLENGING I T BOTH ON THE LEGAL ISSUE OF VALIDITY OF PROCEEDING INITIATED U/S 147 AS WELL AS ON THE MERITS OF THE ADDITIONS MADE. 5. AS FAR AS THE VALIDITY OF THE PROCEEDING INITIAT ED U/S 147 IS CONCERNED, THOUGH ASSESSEE ADVANCED ELABORATE ARGU MENT BUT THE LD. CIT(A) DID NOT FIND MERIT IN THEM. LD. CIT (A) CONCLUDED THAT AS AT THE TIME OF REOPENING OF ASSESSMENT AO H AD PRIMA- FACIE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASS ESSMENT ON ACCOUNT OF TAXES WHICH WERE NOT PAID THROUGH NORMAL ACCOUNTS OF THE FIRM AND WHEN THERE WAS A CLEAR DISCREPANCY ON SALE OF 4 ITA NO 257/HYD/2014 M/S SRI VIJAYALAKSHMI MINERALS TRADING CO. ASSETS IN ASSESSEES OWN FINANCIAL STATEMENTS, THE REOPENING OF ASSESSMENT U/S 147 IS VALID. CHALLENGING THE AFORES AID DECISION OF LD. CIT(A), ASSESSEE IS BEFORE US. 7. AS FAR AS MERITS OF THE ADDITIONS ARE CONCERNED, LD. CIT(A) AFTER CONSIDERING SUBMISSIONS OF THE ASSESSEE AND E XAMINING FACTS AND MATERIALS ON RECORD FOUND NO MERIT IN ADD ITIONS MADE OF RS. 4,16,783 ON ACCOUNT OF SELF-ASSESSMENT TAX PAID OUT OF UNDISCLOSED INCOME AND RS. 42,16,457 TOWARDS VALUE OF UNDISCLOSED ASSETS AND ACCORDINGLY DELETED THE ADDI TIONS MADE BY AO. HOWEVER, OUT OF ADHOC DISALLOWANCE OF RS. 68 ,37,471 FROM EXPENDITURE, LD. CIT(A) SUSTAINED ADDITION TO THE EXTENT OF RS. 13,31,815. 8. THE LEARNED AR CHALLENGED THE VALIDITY OF THE PR OCEEDING INITIATED U/S 147 OF THE ACT AS WELL AS THE ASSESSM ENT ORDER PASSED CONSEQUENT THERETO ON THE FOLLOWING ISSUES: THERE BEING NO FRESH OR TANGIBLE MATERIAL TO POINT OUT ESCAPEMENT OF INCOME, REASSESSMENT PROCEEDING IS IN VALID. THE BELIEF FORMED BY AO IS NOT OF A REASONABLE PER SON PROPERLY INSTRUCTED IN LAW. THE AO SHOULD HAVE DROPPED THE PROCEEDING AFTER TH E ASSESSEE CLARIFIED THE ISSUES ON WHICH ASSESSMENT W AS REOPENED. REOPENING OF ASSESSMENT WAS MADE ON PRESUMPTION AN D DOUBTS AND WAS ONLY FOR FURTHER VERIFICATION. REASONS FOR REOPENING AS COMMUNICATED TO ASSESSEE AND AS SUPPLIED AT THE TIME OF HEARING BEFORE LD. CIT(A ) ARE DIFFERENT. 5 ITA NO 257/HYD/2014 M/S SRI VIJAYALAKSHMI MINERALS TRADING CO. APPROVAL GRANTED BY THE SANCTIONING AUTHORITY IS MECHANICAL. REOPENING OF ASSESSMENT IS NOT BONAFIDE AS SEVERAL ASSESSMENTS WERE REOPENED SIMULTANEOUSLY AND INDISCRIMINATELY. 9. IN SUPPORT OF THE AFORESAID CONTENTIONS, LD. AR ALSO RELIED ON A NUMBER OF DECISIONS AS SUBMITTED IN A COMPILAT ION. AS FAR AS MERITS OF THE DISALLOWANCE OF RS. 13,31,815 SUSTAIN ED BY LD. CIT(A), LD. AR SUBMITTED THAT WHILE AO MADE ADHOC D ISALLOWANCE OF 25% OUT OF THE TOTAL EXPENDITURE CLAIMED BY ASSE SSEE LD. CIT(A) CONFINED THE ADDITION TO RS. 13,31,815. EXPL AINING THE NATURE OF EXPENDITURE, LD. AR SUBMITTED THAT IT WAS INCURRED ON ACCOUNT OF PAYMENTS MADE TO OUTSIDE LABOURERS WHO W ERE NOT ON REGULAR PAY ROLL OF ASSESSEE. HENCE, ONLY SELF-MADE VOUCHERS SHOULD BE AVAILABLE AGAINST SUCH EXPENDITURE. THE L D. AR SUBMITTED THAT SUCH TYPES OF EXPENDITURES HAVE BEEN INCURRED EVERY YEAR AND CONSIDERING THE BUSINESS TURNOVER OF ASSESSEE, EXPENDITURE TOWARDS LABOUR CHARGES IS REASONABLE. T HE LD. AR SUBMITTED THAT ASSESSEE HAS MAINTAINED COMPLETE VOU CHERS WHICH RUNS INTO HUGE NUMBERS. THE SELF-MADE VOUCHER S ARE FOR PAYMENTS OF SMALL AMOUNTS LIKE TO RS. 200 TO RS. 30 0, HENCE, THERE IS NO REASON TO DISBELIEVE THE EXPENDITURE IN CURRED BY ASSESSEE. LD. AR SUBMITTED THAT THE ADHOC DISALLOWA NCE WAS NOT PART OF THE REASONS RECORDED AND WAS ONLY INTRODUCE D IN THE DRAFT ASSESSMENT ORDER. HE SUBMITTED THAT WHEN LD. CIT(A) DELETED THE ADDITIONS ON THE BASIS OF WHICH PROCEEDING WAS INIT IATED U/S 147 OF THE ACT, HE SHOULD NOT HAVE SUSTAINED NEW ADDITI ON MADE BY AO. 6 ITA NO 257/HYD/2014 M/S SRI VIJAYALAKSHMI MINERALS TRADING CO. 10. THE LEARNED DR AT THE TIME OF HEARING AS WELL A S WRITTEN SUBMISSION FILED BEFORE US JUSTIFIED THE INITIATION OF PROCEEDING U/S 147 OF THE ACT AS WELL AS ADDITION SUSTAINED BY LD. CIT(A). 11. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATE RIALS ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISI ONS RELIED UPON BY THE PARTIES. AS CAN BE SEEN FROM THE ORDER OF LD. CIT(A) OUT OF THE THREE ADDITIONS MADE BY AO, LD. CIT(A) H AS DELETED TWO ADDITIONS RELATING TO PAYMENT OF SELF-ASSESSMEN T TAX AND VALUE OF UNDISCLOSED ASSET, WHICH FORMED THE BASIS OF REOPENING. AS FAR AS THE ADHOC DISALLOWANCE OF RS. 68,37,471 FROM EXPENDITURE, LD. CIT(A) HAS SUSTAINED THE ADDI TION TO THE EXTENT OF RS. 13,31,815, WHICH IS THE ONLY SURVIVIN G ADDITION AWAITING ADJUDICATION BEFORE US. THEREFORE, AT THE FIRST INSTANCE, WE PROCEED TO DEAL WITH THE MERITS OF THE ADDITION SUSTAINED BY LD. CIT(A). AS CAN BE SEEN FROM THE ASSESSMENT ORDE R, AO WHILE COMPLETING THE ASSESSMENT DISALLOWED 20% OUT OF THE TOTAL EXPENDITURE OF RS. 2,73,49,884 CLAIMED BY ASSESSEE BY OBSERVING THAT ASSESSEE COULD NOT PRODUCE ALL BILLS AND VOUCHERS FOR VERIFICATION. BEFORE THE FIRST APPELLATE AUTHOR ITY, ASSESSEE APART FROM MAKING HIS SUBMISSIONS ALSO PRODUCED EVI DENCE IN SUPPORT OF THE EXPENDITURE CLAIMED. ON THE BASIS OF THE SUBMISSIONS MADE BY ASSESSEE, LD. CIT(A) CALLED FOR A REMAND REPORT. DURING THE REMAND PROCEEDING, AO AFTER VERI FYING THE BILLS AND VOUCHERS PRODUCED BY ASSESSEE, OBSERVED THAT AS SESSEE COULD NOT PRODUCE BILLS/VOUCHERS IN SUPPORT OF EXPE NDITURE INCURRED OF RS. 97,224. HE FURTHER OBSERVED THAT EX PENDITURE INCURRED OF RS. 48,39,363 WERE SUPPORTED BY SELF-MA DE VOUCHERS ONLY. LD. CIT(A) AFTER PERUSING THE COMMENTS OF AO, DISALLOWED 7 ITA NO 257/HYD/2014 M/S SRI VIJAYALAKSHMI MINERALS TRADING CO. THE EXPENDITURE OF RS. 97,224 IN ABSENCE OF BILLS A ND OUT OF THE EXPENSES OF RS. 49,38,363, WHICH WERE SUPPORTED BY SELF-MADE VOUCHERS, LD. CIT(A) MADE ADHOC DISALLOWANCE OF 25% . AS CAN BE SEEN FROM THE FACTS AND MATERIALS ON RECORD, THE ENTIRE EXPENDITURE OF RS. 2,79,48,884 WAS SUPPORTED BY BIL LS AND VOUCHERS, EXCEPT AN AMOUNT OF RS. 97,224. IN FACT, IN PARA 8.3 OF THE ORDER, LD. CIT(A) HAS OBSERVED THAT EXCEPT ONLY ONE VOUCHER OF RS. 97,224 ALL OTHER VOUCHERS ARE AVAILABLE. THE REFORE, WHEN ALL THE EXPENDITURE WERE SUPPORTED BY BILLS AND VOU CHERS, IT IS HIGHLY IMPROBABLE THAT THE ASSESSEE WITHOUT INCURRI NG THE EXPENDITURE HAS CLAIMED THE AMOUNT OF RS. 97,224. W HEN ASSESSEE HAS METICULOUSLY MAINTAINED BILLS AND VOU CHERS FOR ALMOST THE ENTIRE EXPENDITURE INCURRED ABSENCE OF O NE BILL WOULD NOT LEAD TO THE CONCLUSION THAT ASSESSEE HAS NOT IN CURRED THE EXPENDITURE. SO FAR AS THE AMOUNT OF RS. 49,38,363 IS CONCERNED, IT IS NOT IN DISPUTE THAT THE EXPENDITUR E INCURRED IS TOWARDS LABOUR CHARGES. ONLY BECAUSE THE EXPENDITUR ES WERE SUPPORTED BY SELF-MADE VOUCHERS A PART OF THE EXPEN DITURE CANNOT BE DISALLOWED UNLESS IT IS PROVED THAT THE E XPENDITURE INCURRED IS UNREASONABLE OR EXCESSIVE COMPARED TO T HE TURNOVER OF ASSESSEE. IT IS QUITE EVIDENT THAT LD. CIT(A) DO ES NOT DISPUTE THE FACT THAT ASSESSEE HAS INCURRED THE EXPENDITURE TOWARDS LABOUR CHARGES. HE IS ONLY DISPUTING THE QUANTUM OF EXPENDITURE. THEREFORE, CONSIDERING THE NATURE OF EXPENDITURE AN D KEEPING IN VIEW THE TURNOVER OF ASSESSEE WE HOLD THAT DISALLOW ANCE OF A PART OF THE EXPENDITURE CLAIMED IS NOT JUSTIFIED. MOREOV ER, WHEN LD. CIT(A) DELETED THE ADDITIONS MADE BY AO WHICH FORME D THE BASIS OF REOPENING, IN ALL FAIRNESS HE SHOULD HAVE DELETE D ENTIRELY THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDI TURE AS INTENT AND PURPOSE OF SECTION 147 IS NOT FOR MAKING ADHOC 8 ITA NO 257/HYD/2014 M/S SRI VIJAYALAKSHMI MINERALS TRADING CO. DISALLOWANCES. ACCORDINGLY, WE DELETE THE ADDITION MADE OF RS. 13,31,815. 12. AS WE HAVE DELETED THE ADDITION SUSTAINED BY LD . CIT(A), THE ISSUE RELATING TO VALIDITY OF PROCEEDING U/S 14 7 IS REDUCED TO MERE ACADEMIC INTEREST. IN THAT VIEW OF THE MATTER, IT IS NEITHER NECESSARY NOR REQUIRED TO ADJUDICATE THIS ISSUE. T HEREFORE, THE GROUNDS RELATING TO THIS ISSUE ARE DISMISSED HAVING BECOME INFRUCTUOUS. 13. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. PRONOUNCED IN THE OPEN COURT ON 21/11/2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIA L MEMBER HYDERABAD, DATED: 21 ST NOVEMBER, 2014 KV COPY TO:- 1) M/S SRI VIJAYALAKSHMI MINERALS TRADING CO., C/O M/S V.S. REDDY & CO., CAS, G1, KRISHNA SIND HU RESIDENCY, 8-2-120/8603, ROAD NO. 3, BANJARA HIL LS, HYDERABAD 500 034 2) ACIT, CIRCLE 2(3), HYDERABAD 3) CIT(A)-III, HYDERABAD 4)CIT-II, HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.