ACIT, Balasore V. M/s. Santosh Kumar Khandelwal, Mayurbhanj

ITA 286/CTK/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5386 (ITAT-CUTTACK)
• Duration Of Justice: 2 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 10-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K PRADHAN
• Assessee Lawyers: D K SHETH
• Keywords: Business income; Depreciation
• Section: 40A(3); 143(3); 142(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI N.S.SAINI, AM & SHRI PAV AN KUMAR GADALE, JM ./ ITA NO. 29 3 / CTK /20 1 5 ( / ASSESSMENT YEAR : 20 1 1 - 201 2 ) M/S SANTOSH KUMAR KHA NDELWAL, MADHUBA, WARD NO.7, BARIPADA, MAYURBHANJ, ODISHA - 757001 VS. DCIT, BALASORE CIRCLE, BALASORE ./ ./ PAN/GIR NO. : A A O FS 0967 J ( / APPELLANT ) .. ( / RESPONDENT ) AND ./ ITA NO. 286/CTK /20 15 ( / ASSESSMENT YEAR :2011 - 2012 ) DCIT, BALASORE CIRCLE, BALASORE VS. M/S SANTOSH KUMAR KHANDELWAL, MADHUBA, WARD NO.7, BARIPADA, MAYURBHANJ, ODISHA - 757001 ./ ./ PAN/GIR NO. : A AOFS 0967 J ( / APPELLANT ) .. ( / RESPONDENT ) /AS SESSEE BY : SHRI D.K.SHETH, AR /REVENUE BY : SHRI D.K.PRADHAN, DR / DATE OF HEARING : 21 / 09 /201 7 / DATE OF PRONOUNCEMENT 03/10 /201 7 / O R D E R P ER SHRI PAV AN KUMAR GADALE, JM : TH E SE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF CIT (A) , CUTTACK , IN APPEAL NO. 0662 /201 3 - 1 4 , DATED 31.03.2015 , PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 FOR THE ASSE SSMENT YEAR 20 1 1 - 201 2 . 2. SINCE THE ISSUE INVOLVED IN BOTH THE APPEALS ARE CONNECTED AND COMMON, HENCE, BOTH THE APPEALS ARE HEARD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER. FOR THE SAKE OF CONVENIENCE, W E SHALL TAKE UP ITA NO. 293&286 /CTK/201 5 2 ASSESSEES APPEAL I.E. I TA NO.293/CTK/2015 AND THE FACTS NARRATED THEREIN. 3. THE SOLE SUBSTANTIVE GROUND RAISED BY THE ASSESSEE THAT THE CIT(A) WAS NOT CORRECT IN ESTIMATING THE PROFIT AT 8% WHICH IS ON HIGHER SIDE AND UNJUSTIFIED. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM AND FILED THE RETURN OF INCOME ELECTRONICALLY FOR THE ASSESSMENT YEAR 201 1 - 2012 ON 11.01.2012 WITH TOTAL INCOME OF RS. 27,98,100 / - AND THE RETURN OF INCOME WAS PROCESSED U/S.143(1) OF THE ACT AND SUBSEQUENTLY THE CASE WAS SELECTED F OR SCRUTINY UNDER CASS AND NOTICE U/S.143(2) & 142(1) ALONG WITH QUESTIONNAIRE WAS ISSUED. IN COMPLIANCE TO THE SAME, LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND EXPLAINED THE CASE. THERE WAS A SURVEY OPERATION U/S.133A ON 14.12.2010 AND THE STA TEMENT WAS RECORDED FROM THE PARTNER OF THE FIRM. SUBSEQUENTLY, THE AO RECORDED STATEMENT OF ANOTHER PARTNER AND FOUND THAT THE ASSESSEE FIRM HAS SHOWN LESSER INCOME IN THE RETURN OF INCOME IN COMPARISON WITH THE STATEMENT RECORDED U/S.131 OF THE ACT . IN T HE ASSESSMENT PROCEEDINGS, THE AO DEALT ON THE PARTNERS STATEMENT AT PAGE 2 OF THE ORDER AND EMPHASIZED ON INACCURATE PARTICULARS SUBMITTED ON ASSESSEES CLOSING STOCK AND BOGUS PAYMENTS REFERRED AT PAGE 2 & 3 OF THE ORDER AND FINALLY THE AO CONCLUDED THAT THE ASSES SEE HAD CONCEALED PARTICULARS TO THE EXTENT OF RS. 1,10,60,377/ - WHILE FILING THE RETURN OF INCOME AS THE ASSESSEE FIRM OFFERED TO DECLARE PROFIT 8% OF THE TOTAL TURNOVER AS PER THE STATEMENT RECORDED U/S.131 OF THE ACT. BUT I N THE SCRUTINY ASSESSMENT THE A SSESSEE ITA NO. 293&286 /CTK/201 5 3 FIRM COULD NOT PROPERLY EXPLAIN THE VALUE OF THE CLOSING STOCK AND CERTAIN PAYMENTS LACK GENUINE NESS . WITH THIS OBSERVATION S THE AO IS OF THE OPINION THAT THE ASSESSEE HAS SUPPRESS ED THE VALUE OF CLOSING STOCK AND CLAIM ED OF BOGUS PAYMENTS AND DISALLO WED RS.1, 00 , 65 ,677/ - UNDER SECTION 40A(3) OF THE ACT AND ADDITION OF CLOSING STOCK RS.23,04,308/ - AND ASSESSED TOTAL INCOME AT RS. 1,51,68,080/ - AND PASSED THE ORDER U/S.143(3) OF THE ACT, DATED 13.03.2014. 5 . AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE FILE D AN APPEAL WITH THE CIT(A). IN TH E APPELLATE PROCEEDINGS, THE LD. AR OF THE ASSESSEE APPEARED AND ARGUED THE GROUNDS AND REITERATED THE SUBMISSIONS MADE BEFORE THE AO, WHEREAS THE LD. CIT(A) CONSIDERED THE FACTS AND SUBMISSIONS OF THE ASSESSEE IN APPELLAT E PROCEEDINGS AND RELIED ON THE DECISION OF THE TRIBUNAL AND DIRECTED THE AO TO ESTIMATE NET PROFIT AT 8% OF THE GROSS RECEIPTS AND ALLOW DEPRECIATION AND INTEREST AND REMUNERATION TO PARTNERS AND PARTLY ALLOWED THE APPEAL OF THE ASSESSEE HELD AT PAGE 3 P ARA 6 OF THE ORDER WHICH READS AS UNDER : - 6. I HAVE PERUSED THE ORDER OF THE AO AND THE AUDIT REPORT, BALANCE SHEET AND P&L A/C, OF THE APPELLANT. I HAVE ALSO GONE THROUGH THE EARLIER ASSESSMENT ORDERS MADE BY THE AO, ORDER OF THE CIT(A) AND ORDER OF THE HONBLE ITAT, CUTTACK. IT APPEARS THAT IN THE IMPUGNED CASE THE BOOKS OF ACCOUNTS ARE NOT MAINTAINED PROPERLY AND THE BOOKS OF ACCOUNTS A R E NOT SHOWN BY THE APPELLANT EITHER BEFORE THE AO NOR BEFORE ME DURING APPEAL HEARING. IT IS THEREFORE JUSTIFIED TO E STIMATE THE INCOME OF THE APPELLANT AS HAS BEEN DONE IN OTHER CASES OF WORKS CONTRACT. THE HONBLE ITAT, CUTTACK IN THE CASE OF THE APPELLANT FOR THE AY 2008 - 09 AND 2009 - 10 HAS OPINED THAT DEPRECIATION AND INTEREST ON SALARY TO PARTNERS AS CLAIMED BY THE A SSESSEE SHOULD BE ALLOWED AFTER ESTIMATION OF THE NET PROFIT. THE AO IS DIRECTED TO ESTIMATE THE NET PROFIT @8% AND THE GROSS RECEIPTS AMOUNTING TO RS.23,29,63.596/ - AND ALLOW DEPRECIATION, INTEREST TO PARTNERS AND REMUNERATION TO PARTNER FROM IT. ITA NO. 293&286 /CTK/201 5 4 6 . AGGR IEVED BY THE ORDER OF CIT(A), THE ASSESSEE ASSAILED AN APPEAL WITH THE TRIBUNAL. 7 . BEFORE US, LD. A R SUBMITTED THAT THE CIT(A) HAS ERRED IN ESTIMATING INCOME AT 8% WHICH IS UNJUSTIFIED AND ON HIGHER SIDE AND SUPPORTED HIS ARGUMENTS RELYING ON THE DECISION OF COORDINATE BENCH IN ASSESSEES OWN CASE IN EARLIER ASSESSMENT YEAR S AND PRAYED THE PERCENTAGE OF ESTIMATION BE RESTRICTED TO 5% BEING REASONABLE. CONTRA, LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 8. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD. THE SOLE MATRIX OF THE ISSUE BEING DETERMINATION OF INCOME BY THE AO ON THE BASIS OF STATEMENT RECORDED IN SURVEY U/S.133A OF THE ACT AND THE SUBMISSIONS OF THE ASSESSEES PARTNERS U/S.131 OF THE ACT. WE FIND T HE CIT(A) RELIED ON THE DEC ISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2008 - 09 AND ESTIMATED THE INCOME AT 8%, W HERE THE PROFIT ELEMENT DISCLOSED BY THE ASSESSEE WAS 2.65%. THE LD. DR SUBMITTED THAT THE ESTIMATE IN THE CURRENT ASSESSMENT YEAR SHOULD BE RESTRICTED TO 7%. THE L D. AR FURTHER SUBMITTED THAT FOR THE ASSESSMENT YEAR 2012 - 2013, THE CIT(A) HAS ESTIMATED PROFIT AT 6% AND DREW OUR ATTENTION TO THE PAGE 16 OF THE PAPER BOOK WHERE THE LD. CIT(A) IN ITS ORDER DIRECTED AO TO ESTIMATE PROFIT @6%. WE ON PERUSAL OF PARA 3.1 OF THE ORDER, FOUND THAT THE ASSESSEE HAS DISCLOSED FOR THE SAID ASSESSMENT YEAR NET PROFIT AT 5.44% BUT IN THE PRESENT CASE THE CIT(A) HAS ESTIMATED NET PROFIT AT 8% , IN SPITE OF AO MADE ADDITION ON A CCOUNT OF VARIOUS DEFICIENCIES IN THE BOOKS OF ACCOUNTS. WE FOUND THE SUBMISSIONS OF LD. AR ON RESTRICTING NET PROFIT TO ITA NO. 293&286 /CTK/201 5 5 6% IS NOT ACCEPTABLE AND CONSIDERING THE FACTS OF SURVEY U/S.133A OF THE ACT AND STATEMENT RECORDED U/S.131 OF THE ACT FROM THE PARTNERS OF THE FIRM, WE ARE OF THE SUBSTANTIVE VIE W THAT INCOME OF THE ASSESSEE SHALL BE ESTIMATED AT 6.5% OF THE GROSS RECEIPTS AND WE ACCORDINGLY DIRECT THE AO TO ESTIMATE PROFIT 6.5% OF THE TURNOVER/GROSS RECEIPTS AND MODIFY THE ORDER OF CIT(A) AND PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 9. NOW, WE SHALL TAKE UP THE REVENUES APPEAL IN ITA NO. 286/CTK/2015, WHEREIN THE REVENUE HAS CHALLENGED THE ACTION OF CIT(A) IN DIRECTING TO ESTIMAT ING 8% AND ALLOWING DEPRECIATION AND REMUNERATION TO THE PARTNERS FROM THE ESTIMATED INCOME. LD. DR EMPHASISED THAT T HE CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOW DEDUCTION S FROM THE ESTIMATED INCOME OF 8% IN RESPECT OF DEPRECIATION , INTEREST TO PARTNERS AND REMUNERATION, WHEREAS LD. AR SUBMITTED AND EMPHASISED THAT THIS DISPUTED ISSUE HAS BEEN DEALT BY THE TRIBUNAL I N ASSESSEES OWN CASE IN ITA NO. 70&71/CTK/2013 FOR THE ASSESSMENT YEAR 2008 - 09 & 2009 - 10, ORDER DATED 22.02.2013, WHERE THE TRIBUNAL HAS OBSERVED IN RESPECT OF THIS ISSUE AT IN LAST PARA OF PAGE 11 WHICH READS AS UNDER : - AS MENTIONED ABOVE, THE INTE REST AND SALARY TO PARTNERS AS CLAIMED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE ARE TO BE ALLOWED INSOFAR AS THEY ARE TO BE ALLOWED FROM THE BUSINESS INCOME ESTIMATED AT 5% IN ACCORDANCE WITH THE PROVISIONS OF I.T.ACT TO BE RENDERED AS BUSINESS INCOME BY THE PARTNERS U/S.28(V), WHEN THE CORRECT INCOME HAS BEEN COMPUTED U/S.143(3) AND NOT BECAUSE THERE IS ANY FAILURE ON THE PART OF THE ASSESSEE AS MENTIONED U/S.144. WE DIRECT ACCORDINGLY. 10. WE RESPECTFULLY FOLLOW THE JUDICIAL PRECEDEN CE OF COORDINATE BENCH DECISION AND UPHOLD THE ACTION OF CIT(A) IN DIRECTING THE AO TO ALLOW ITA NO. 293&286 /CTK/201 5 6 DEDUCTION O F DEPRECIATION AND INTEREST TO PARTNERS AND REMUNERATION FROM ASSESSEE FIRM ESTIMAT ED INCOME AND DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 11 . IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 293/CTK/2015 IS PARTLY ALLOWED AND APPEAL OF REVENUE IN ITA NO. 286/CTK/2015 IS DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 03/10 / 201 7 . SD/ - ( N. S. SAINI ) SD/ - ( PA V AN KUMAR GADALE ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER CUTTACK ; DATED 03/10 /201 7 . . / PKM , SENIOR PRIVATE SECRETARY / COPY OF THE ORDER FORWARDED TO : W / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , / ITAT, CUTTACK 1. / THE APPELLANT - 2. / THE RESPONDENT - 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, CUTTACK 6. / GUARD FILE. //TRUE COPY//