ITO, RAJSAMAND V. M/s. Nakoda Agency, RAJSAMAND

ITA 266/JODH/2013

• Counselvise Citation: 26623314 RSA 2013
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 18-09-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 06-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Corroborative evidences
• Section: 144

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 266/JODH/2013 [A.Y. 2005-06] ITO, VS. M/S. NAKODA AGENCY, WARD 2, N.H. 8, BUS STAND, RAJSAMAND, BHIM, RAJSAMAND. PAN NO. AAFFN2145Q (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI N.A. JOSHI- D.R. DATE OF HEARING : 18/09/2013. DATE OF PRONOUNCEMENT : 20/09/2013. O R D E R PER N.K.SAINI, A.M THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 26/02/2013 OF LD. CIT(A), UDAIPUR. DURING THE COUR SE OF HEARING, NOBODY WAS PRESENT ON BEHALF OF THE ASSESSEE NEITHER ANY A DJOURNMENT WAS SOUGHT. NOTICE OF HEARING WHICH WAS SENT TO THE AS SESSEE RETURNED BACK UN-SERVED WITH ENDORSEMENT LEFT. NOTICE WAS SENT ON THE LAST AVAILABLE ADDRESS OF THE ASSESSEE MENTIONED IN FORM NO. 36. SINCE, NO NEW ADDRESS 2 WAS INFORMED BY THE ASSESSEE, THEREFORE, IT APPEARS THAT THE ASSESSEE IS NOT INTERESTED TO PROSECUTE THE MATTER, SO, IT WAS DECIDED TO DISPOSE OFF THE APPEAL OF THE DEPARTMENT EXPARTE QUA THE ASSESSEE AFTER HEARING LEARNED D.R., OF COURSE ON MERITS. 2 THE FIRST ISSUE IN THIS APPEAL RELATES TO THE DELE TION OF ADDITION OF RS. 11,99,139/- MADE BY THE ASSESSING OFFICER ON AC COUNT OF UNEXPLAINED CAPITAL CONTRIBUTION BY THE PARTNERS. 3. THE FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT ASSESSEE FILED THE RETURN OF INCOME ON 20/12/2005 DECLARING AN INCOME OF RS. 39,839/-, WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE I.T . ACT, 1961 (HEREINAFTER REFERRED TO AS ACT, FOR SHORT). LAT ER ON, CASE WAS SELECTED FOR SCRUTINY. THE ASSESSING OFFICER FRAMED THE ASS ESSMENT EXPARTE UNDER SECTION 144 OF THE ACT ON A TOTAL INCOME OF RS. 15, 00,950/-. IN THE SAID INCOME, AN ADDITION OF RS. 11,99,139/- INTRODUCED B Y TWO PARTNERS IN THE FIRM AS CAPITAL WAS ADDED BY CONSIDERING THE SAME A S UNDISCLOSED INCOME OF THE ASSESSEE-FIRM. 4. BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER TO TH E LEARNED CIT(A), WHO DELETED THE IMPUGNED ADDITION BY OBSERVING THAT THE ASSESSEE-FIRM COMMENCED BUSINESS AS A DEALER OF M/S. SONALIKA INT ERNATIONAL TRACTORS 3 LTD. AND AS THE FIRM HAD COMMENCED BUSINESS AFTER T HE DEPOSITS MADE BY THE PARTNERS FOR PURCHASING OF GOODS. SO, IT WAS N OT POSSIBLE TO INFER THAT THERE WAS UNDISCLOSED INCOME OF THE ASSESSEE-FIRM P RIOR TO ITS COMMENCEMENT OF BUSINESS ACTIVITY SUCH DEPOSITS COU LD BE CONSIDERED IN THE HANDS OF THE PARTNERS, IF AT ALL DOUBTED. RELI ANCE WAS PLACED ON THE FOLLOWING CASE-LAWS:- 1) M/S. SURENDERA MOHAN VS. CIT (1996) 221 ITR 239 . 2) ARAVALI TRADING CO. VS. ITO (2008) 220 CTR (RAJ .) 622. 3) KAMAL MOTORS VS. CIT (1003) 131 TAXMAN 155 (RAJ .) 4) CIT VS. RAJ BOREWELLS (2007) 291 ITR 232. 5) CIT VS. METACHEM INDUSTRIES (2000) 245 ITR 160 (MP); AND 6) NEMICHAND KOTHARI VS. CIT (2003) 264 ITR 254 (G AU.) NOW, THE DEPARTMENT IS IN APPEAL. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF LEARNED D.R. AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT C ASE, IT IS AN ADMITTED FACT THAT THE PARTNERS OF THE ASSESSEE-FIRM CONTRIB UTED THEIR CAPITAL TO START THE BUSINESS, WHICH WAS COMMENCED WITH THE DE POSITS BY THE PARTNERS. THEREFORE, IT WAS NOT POSSIBLE TO INFER THAT THERE WAS UNDISCLOSED INCOME OF THE ASSESSEE-FIRM PRIOR TO IT S COMMENCEMENT OF THE BUSINESS ACTIVITY AND IF AT ALL THE ASSESSING O FFICER WAS HAVING ANY 4 DOUBT ABOUT THE DEPOSITS OF THE PARTNERS, WHO WERE IDENTIFIABLE, THE ADDITION IF ANY WAS TO BE MADE THAT COULD HAVE BEEN MADE IN THE HANDS OF THE PARTNERS AND NOT IN THE HANDS OF THE ASSESSE E-FIRM. THEREFORE, WE DO NOT SEE ANY MERIT IN THIS GROUND OF THE DEPARTME NTAL APPEAL. 6 . THE NEXT ISSUE VIDE GROUND NO.2 RELATES TO THE RE STRICTION OF DISALLOWANCE OF EXPENSES TO RS.25,000/- AS AGAINST RS. 3,15,000/- MADE BY THE ASSESSING OFFICER. 7 . FACTS RELATING TO THIS ISSUE IN BRIEF ARE THAT ASS ESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE HAD DECLARED GROSS PROFIT (GP) RATE AT 10% FROM TOTAL S ALES OF RS. 43,27,600/-. SINCE, NO BOOKS OF ACCOUNTS WERE PRODUCED, THE ASSE SSING OFFICER HAD NO MEANS OF EITHER EXAMINING OR RELYING UPON THE DECLA RED TRADING RESULTS. THE ASSESSING OFFICER CONSIDERED IT FAIR AND REASON ABLE TO MAKE LUMP SUM ADDITION OF RS. 2,15,000/- TO THE DECLARED GP BY TH E ASSESSEE. THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE H AD DEBITED TOTAL EXPENSES OF RS. 3,93,150/- UNDER VARIOUS HEADS ON T HE PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER HELD THAT IN ABSENC E OF BOOKS OF ACCOUNTS, BILLS, VOUCHERS, THE GENUINENESS OF THE EXPENSES RE MAINED UN-VERIFIABLE, HE, THEREFORE, MADE A LUMP SUM ADDITION OF 1,00,000 /-. 5 8 . BEING AGGRIEVED ASSESSEE CARRIED THE MATTER TO TH E LEARNED CIT(A) AND SUBMISSIONS MADE AS INCORPORATED AT PAGES 8 TO 10 IN THE IMPUGNED ORDER WERE AS UNDER:- THAT THE APPELLANT WAS A PARTNERSHIP FIRM INVOLVED IN TRADING OF TRACTORS AND TRACTORS PARTS ONLY. DETAILED BOOKS OF ACCOUNTS WE RE MAINTAINED AND AUDITED BY THE CHARTERED ACCOUNTANT UNDER SECTION 44AB OF THE INCOME TAX ACT. PURCHASES, SALES, RECEIPTS, PAYMENTS, STOCK DETAILS ARE REGULA RLY MAINTAINED AND ALL RELEVANT VOUCHERS ARE AVAILABLE ON RECORDS. THE REASONS FOR NON FURNISHING AT THE TIME OF ORIGINAL ASSESSMENT HAVE ALREADY BEEN DISCUSSED SEP ARATELY AND WE RELY FOR THESE GROUNDS ALSO. THE LEANED AO HAS OBSERVED THAT 'NO D ETAILS OF EXPENSES DEBITED IN PROFIT AND LOSS ACCOUNT ARE FURNISHED - LUMP SUM DISALLOWANCE OF 30%-----. IN THIS RESPECT THE AR SUBMITTED THAT THE AO HAS IG NORED THE FACTS THAT THE ACCOUNTS WERE AUDITED AND HEAD WISE DETAILS OF EXPE NSES WERE AVAILABLE IN PROFIT AND LOSS ACCOUNT ITSELF. IN FACT ALL THE EXPENSES A RE DULY SUPPORTED BY VOUCHERS PLACED ON RECORDS IN THE PAPER BOOK. THE ASSESSING OFFICER HAS MADE GENERAL COMMENTS IN THE REMAND REPORT WITHOUT APPRECIATING THE EVIDENCES AVAILABLE FOR SUCH EXPENSES IN THE PAPER BOOK. WE HAD ALREADY SUB MITTED DETAILED EXPLANATIONS ALONGWITH EVIDENCES IN THIS RESPECT. E VEN IN THE PRESENT REMAND REPORT HE HAS NOT QUANTIFIED THE DISALLOWANCES OF E XPENDITURE AND HAS NOT CONSIDERED THE FACTS THAT THE OVERALL EXPENDITURE C LAIMED BY THE ASSESSEE WERE VERY REASONABLE AND THE ASSESSING OFFICER HAS NOT Q UOTED ANY COMPARABLE CASE ALSO. IN HIS COMMENTS HE HAS EXCEEDED THE JURISDICT ION AVAILABLE TO HIM FOR THE COMMENTS ALSO. THE ASSESSEE HAD ALREADY SUBMITTED T HE DETAILED EXPLANATIONS IN THIS RESPECT FROM TIME TO TIME WHICH IS REASONABLE IN THIS CASE' AS REGARDS THE ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENSES THE LEARNED AO HAS ERRED IN MAKING LUMP SUM ADDITION OF RS. 1,00,000/-BY DISALL OWANCE OUT OF TOTAL EXPENSES OF RS.3,93 ,150/- AT AN ARBITRARY VERY HIGH RATE OF DISALLOWANCE OF 30% WHICH IS NOT JUSTIFIABLE CONSIDERING THE FACT THAT THE ACCOU NTS WERE AUDITED AND THERE WAS NO MATERIAL ON RECORD FROM WHICH IT CAN BE INFE RRED THAT THE ASSESSEE HAS CLAIMED EXCESS EXPENSES UNDER ANY HEAD. THE DISALLO WANCE WAS JUST ON THE BASIS OF ASSUMPTION, PRESUMPTION, CONJECTURES AND SURMISE S. THE ADDITIONS MADE ON THIS ACCOUNT ARE UNCALLED FOR HENCE DESERVES TO BE DELETED. THE ASSESSEE HAS ALREADY SUBMITTED THE RELEVANT SUPPORTING EVIDENCES IN THE PAPER BOOK. AS REGARDS THE FACTS OF BUSINESS AND MAINTENANCE OF AC COUNTS WE HAVE TO BROUGHT TO YOUR NOTICE THE FACT THAT IT WAS THE FIRST YEAR OF BUSINESS OF THE FIRM AND THE ASSESSEE DEALT IN PURCHASE AND SALE OF TRACTORS ONL Y, COMPLETE BOOKS OF ACCOUNTS ALONGWITH QUANTITATIVE INFORMATION AND RECORDS WERE MAINTAINED AND THE ACCOUNTS WERE DULY AUDITED U/S 44AB BEFORE FILING O F RETURN. THE GROSS PROFIT WAS 6 DECLARED AT RS.4,32,989/- WHICH IS ABOUT 10% ON TUR NOVER OF RS.43,27,600/-. CONSIDERING THE FACT THAT IT WAS THE FIRST YEAR OF BUSINESS, THE SALE PRICE WERE FIXED BY THE MANUFACTURER AND THE COST IS ALSO FIXE D BY THE MANUFACTURER' THE PURCHASES AND SALES ARE DULY SUPPORTED WITH RELEVAN T VOUCHERS AND THE STOCK DECLARED BY THE ASSESSEE IS VERIFIABLE QUANTITY WIS E AS MENTIONED IN AUDIT REPORT (QUANTIFIED AS PURCHASES -22, SALES -15 AND STOCK O F - 7 TRACTORS), SO THERE WAS NO JUSTIFICATION IN ESTIMATING GROSS PROFIT AND MAK ING ARBITRARY ADDITION ON APPLYING ADHOC 5% INCREASE IN THE DECLARED GP RATE. THERE WAS NO SALE CONSIDERATION OF SPARE PARTS ETC' IN THE YEAR UNDER CONSIDERATION. THE ENHANCEMENT OF GP RATE BY 5% AND MAKING TRADING ADD ITION OF RS.2,15,000/- IS JUST ON ASSUMPTION, PRESUMPTION, CONJECTURES AND SU RMISES WITHOUT BROUGHT ON RECORD ANY COMPARABLE CASE. THE ADDITIONS MADE ON T HIS ACCOUNT ARE UNCALLED FOR HENCE DESERVES TO BE DELETED. THE ASSESSEE HAS ALREADY SUBMITTED THE RELEVANT SUPPORTING EVIDENCES IN THE PAPER BOOK. TH E ASSESSEE IS READY TO PRODUCE THE RELEVANT BOOKS OF ACCOUNTS FOR VERIFICA TION IF SO REQUIRED. THE ADHOC DISALLOWANCE OF EXPENDITURE CANNOT BE MADE AS PER LAW WITHOUT RECORDING ANY ADVERSE FINDING ON ACCOUNT OF NON AVAILABILITY OF COMPLETE DETAILS, UNVERIFIABLE NATURE AND ELEMENT OF NON BUSINESS PUR POSE. FURTHER THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DEFECTS IN THE BOOK S OF ACCOUNTS BEFORE MAKING SUCH ADDITION IN THE DECLARED INCOME BY ADHOC DISAL LOWANCE OF EXPENDITURE. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES OF TH E CASE THE ADDITION MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIABLE AND BAD IN LAW SO DESERVES TO BE DELETED OR REDUCED SUITABLY CONSIDERING THE FACT AND CIRCUM STANCES OF THE CASE. IN SUPPORT OF OUR SUBMISSION WE LIKE TO DRAW YOUR ATTE NTION TOWARDS FOLLOWING DECIDED CASES. (I) LAKE PALACE HOTELS AND MOTELS PVT. LTD. VS. DCIT (2 004) 1 DTJ 17 (JD) ITAT. (II) LNDO ASIAN TRADERS P.LTD. VS ITO (1987) TAXATION 46 (6) 71. (III) SPEED CARRIERS VS. ITO (1987) 27 ITJ (AHD) 287 AND (IV) KESHAVLAL JASVIRBHAI VS ITO (1987) 27 ITJ(AHD ) 272. HENCE THE LUMP SUM ADDITION MADE BY THE AO IS NOT J USTIFIED IN THIS CASE. THE SAME IS REQUESTED TO BE DELETED. 9 . LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE OBSERVED THAT THE QUANTITATIVE DETAILS RELATING TO SALE OF TRACTORS WERE AVAILABLE IN THE DETAILS OF AUDITED RECORD ATTACHED TO THE RETURN OF 7 INCOME. SO, THERE WAS NO QUESTION ABOUT THE MAKING OF TRADING ADDITION JUST BASED ON ESTIMATES AGAINST SALE OF TRACTORS. HE, THEREFORE, HELD THAT THE ADDITION OF RS. 2,15,000/- AGAINST SALE OF RS. 43,27,600/-, WHICH INCLUDED SALE OF TRACTOR AS WELL AS TRACTOR PARTS W AS NOT JUSTIFIABLE. AS REGARDS, ANOTHER ADDITION OF RS. 1,00,000/-, LEARNE D CIT(A) OPINED THAT IT WOULD BE REASONABLE, JUSTIFIED AND MEET THE ENDS OF JUSTICE IF THE ADDITION WAS RESTRICTED TO RS. 25,000/-. NOW, THE DEPARTMENT IS IN APPEAL. 10. LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF ASSES SING OFFICER AND SUBMITTED THAT SINCE THE BOOKS OF ACCOUNTS WERE NOT PRODUCED AND EXPENSES WERE NOT VERIFIABLE, THEREFORE, THE ADDITI ON MADE BY THE ASSESSING OFFICER WAS JUSTIFIED AND THE LEARNED CIT (A) HAS WRONGLY DELETED THE SAME. 11. AFTER CONSIDERING THE SUBMISSIONS OF LEARNED D.R. A ND PERUSING THE MATERIAL AVAILABLE ON RECORD, IN THE PRESENT CASE, IT APPEARS THAT ASSESSING OFFICER MADE THE TRADING ADDITION WITHOUT ANY BASIS BECAUSE NEITHER HE DOUBTED THE GP RATE DECLARED BY THE ASSE SSEE AT 10% NOR HE BROUGHT ANY MATERIAL ON RECORD TO SUBSTANTIATE THAT IN SUCH TYPE OF BUSINESS THE GP RATE DECLARED IN ANY COMPARABLE CAS E, WAS MORE THAN GP RATE DECLARED BY THE ASSESSEE. THEREFORE, THE TRAD ING ADDITION AMOUNTING 8 TO RS. 2,15,000/- MADE BY THE ASSESSING OFFICER WAS WITHOUT ANY BASIS AND THEREFORE, WAS RIGHTLY DELETED BY LEARNED CIT(A). AS REGARDS LUMP SUM DISALLOWANCE OF RS. 1,00,000/- OUT OF TOTAL EXPENSE S OF RS. 3,93,150/- UNDER VARIOUS HEADS IS CONCERNED, THE ASSESSING OFF ICER MADE THE LUMP SUM DISALLOWANCE WITHOUT ANY BASIS AND THE SAID DIS ALLOWANCE WAS MORE THAN 25% OF THE TOTAL EXPENSES, WHICH WAS DEFINITEL Y ON HIGHER SIDE. IN OUR OPINION, LEARNED CIT(A) WAS FAIR AND REASONABLE TO RESTRICT THE SAME AT RS. 25,000/-. WE, THEREFORE, DO NOT SEE ANY MER IT IN THIS GROUND OF DEPARTMENTAL APPEAL. 12. IN THE RESULT, APPEAL IS DISMISSED. (ORDER PRONOUNCED IN THE COURT ON 20 TH SEPTEMBER, 2013). (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20 TH SEPTEMBER, 2013. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.