Rohit Rai Sethi, Lucknow V. Addl. Commissioner of Income Tax, Lucknow

ITA 29/LKW/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4774 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 21-01-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 13-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PINKI MAHAWAR
• Keywords: Depreciation
• Section: 194C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO. 29 /LKW/2015 ASSESSMENT YEAR:2008-09 ADDL.C.I.T., RANGE-III, LUCKNOW. VS SHRI ROHIT RAI SETHI, FLAT NO. 402 & 403, 13 TH FLOOR, BLOOMBERG TOWER, OMAXE HEIGHTS, VIBHUTI KHAND, GOMTI NAGAR, LUCKNOW. PAN:AOAPS5242Q (RESPONDENT) (APPELLANT) NONE APPELLANT BY SMT. PINKI MAHAWAR, D.R. RESPONDENT BY 21/01/2016 DATE OF HEARING 03 /02/2016 DATE OF PRONOUNCEMENT O R D E R PER A. K. GARODIA, A.M. THIS IS AN ASSESSEES APPEAL DIRECTED AGAINST THE ORDER PASSED BY LEARNED CIT(A)-I, LUCKNOW DATED 27/10/2014 FOR THE ASSESSMENT YEAR 2008-09. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE LEARNED CIT(A) ERRED IN LAW AS WELL AS ON FACTS IN CONFIRMING THE FOLLOWING ADDITIONS MADE BY THE A.O. : I. EXTRA PROFIT ADDITION RS.9,30,587.00 II. OUT OF TELEPHONE EXPENSES RS. 57,988.00 III. OUT OF TRAVELING EXPENSES RS.3,92,660.00 IV. DISALLOWANCE OF DEPRECIATION RS.1,67,608.00 V. LEGAL & PROFESSIONAL EXPENSES .. (1,85,000 (OUT OF 2,17,000 CLAIMED) VI. DISALLOWANCE U/S 40 A(IA) RS.2,56,000.00 VII. DIFFERENCE IN CAPITAL A/C RS.1,25,030.00 2 2. THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THE MATERIAL EVIDENCES BROUGHT ON RECORD AND CHOSE TO R ELY ON ISSUES WHICH WERE IRRELEVANT AND IMMATERIAL. 3. THAT THE AUTHORITIES BELOW GAVE A VERDICT WHICH WAS ONE SIDED, IMAGINARY AND ALTOGETHER IRRELEVANT WITHOUT APPRECIATING THE ACTUAL AND EXISTING FACTS AND CIRCUMSTANCES OF THE CASE READ WITH THE SITUATION T HAT THERE WAS GREAT FINANCIAL CRISIS ON ACCOUNT OF FIRE IN THE GODOWN AND THE DEBTORS HAVING TURNED DISHONEST AND ENTIRE FLOW OF FUNDS WERE STUCKED UP COMPELLING THE APPELLANT TO DISSOLVE THE FIRM AND DISCONTINUE BUSI NESS ACTIVITY SUBSEQUENTLY. 4. THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THE COMPELLING CIRCUMSTANCES VIZ. RUNNING OF BUSINESS F ROM RESIDENCE WHICH WAS OBJECTED BY THE RESIDENTS OF TH E LOCALITY, BEING OUT OF MARKET AND SPECIFICALLY THE NATURE AND STYLE OF BUSINESS BEING ON WHOLESALE BASIS YIEL DING LOWER MARGIN OF PROFITS. 5. THAT THE APPELLANT HAS BEEN DENIED A REASONABLE AND SUFFICIENT OPPORTUNITY AS DIRECTED BY THE HON'BLE I TAT IN ITS APPELLATE ORDER IN 1TA NO.377/LKW/2013 DATED 10 -07- 2014 AND EVEN FAILED TO ISSUE A FRESH NOTICE OF HEA RING AND PARTLY HEARD THE CASE ON 24-09-2014 AND 13-10-2 014 AND THEREAFTER REFUSED TO ACCEPT EVEN AN APPLICATIO N FOR SHORT ADJOURNMENT THOUGH INFORMED THAT THE ASSESSEE IS ON BED DUE TO SLIP DISC AND THE PREVAILING 'DEEPAWA LI FESTIVAL READ WITH THE SITUATION THAT TIME BE GIVEN ONLY TILL THE END OF OCTOBER I.E. AFTER THE FESTIVAL IN SPITE OF SIX MONTHS GIVEN BY THE HON'BLE ITAT. 6. THAT A PERUSAL OF THE RECORDS TRANSPIRE THAT MOR E OR LESS THE ENTIRE PROCEEDINGS VIZ. ASSESSMENT ORDER DATED 28- 12-2010 FOLLOWED BY APPELLATE ORDER DATED 30-01-201 2 AND THE APPELLATE ORDER UNDER APPEAL DATED 27-10-20 14 ARE EX-PANE ORDERS WITHOUT GOING INTO THE INTRICACI ES AND SURROUNDING CIRCUMSTANCES OF THE CASE AND LACKS PRO PER OPPORTUNITY AND FAIR PLAY. 3. NONE APPEARED ON BEHALF OF THE ASSESSEE ON THE A PPOINTED DATE OF HEARING. BEFORE THIS, THE APPEAL WAS FIXED FOR HEA RING ON 16/12/2015. ON 3 THIS DATE, A.R. SHRI ABHINAV MEHROTRA, ADVOCATE MAD E A REQUEST FOR ADJOURNMENT ON THE PLEA THAT HE IS OUT OF STATION. ON HIS REQUEST, THE HEARING WAS ADJOURNED TO 21/01/2016 AND THE DATE OF HEARING WAS PRONOUNCED IN THE OPEN COURT. IN SPITE OF THIS, ON 21/01/2016, NONE APPEARED ON BEHALF OF THE ASSESSEE AND THERE IS NO REQUEST FOR ADJOURNMENT ALSO. PRIOR TO THIS ALSO, THE APPEAL W AS FIXED FOR HEARING ON SEVERAL OCCASIONS AND ON EACH OF THESE OCCASIONS, R EQUEST WAS MADE BY A.R. FOR ADJOURNMENT AND ADJOURNMENT WAS GRANTED BY THE BENCH TO THE ASSESSEE. CONSIDERING ALL THESE FACTS, THE APPEAL WAS HEARD EX-PARTE QUA THE ASSESSEE ON 21/01/2016. 4. LEARNED D. R. OF THE REVENUE SUPPORTED THE ORDER S OF THE AUTHORITIES BELOW. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF LEARNED D. R. OF THE REVENUE, PERUSED THE MATERIAL AVAILABLE ON RECORD A ND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE MAIN ISSUE RE GARDING ADDITION OF RS.9,30,587/- HAS BEEN DECIDED BY CIT(A) AS PER PAR A 3.2 OF HIS ORDER, WHICH IS REPRODUCED BELOW FOR THE SAKE OF READY REF ERENCE: 3.2 I HAVE CONSIDERED THE MATTER. I FIND THAT IN THE PROFIT AND LOSS ACCOUNT THE APPELLANT HAS SHOWN OPENING STOCK AT RS.2,79,22,747/- WHICH HAS BEEN SOLD FOR RS.2,84,12 ,800/-. AT THE END OF THE YEAR THERE IS NO CLOSING STOCK. THE SUNDRY DEBTORS SHOWN AT RS.1,97,03,842/- IN THE BALANCE SH EET AS ON 31.03.2007 HAS INCREASED TO RS.4,02,12,000/- AS ON 31.03.2008. IT MEANS THAT PAYMENTS FOR 70% OF SALES HAVE NOT BEEN RECEIVED DURING THE YEAR. THE APPELLANT HAS AL SO NOT PROVIDED THE DETAILS OF SUCH DEBTORS AND SALES MADE TO THEM. IT IS ALSO NOTED THAT IN THE IMMEDIATELY TWO PRECEDING AYS 2006- 07 & 2007-08 THE APPELLANT HAS DECLARED GROSS PROFI T RATES OF 6.88% AND 7.44% RESPECTIVELY. THE ONLY EXPLANATION GIVEN BY THE APPELLANT FOR DRASTIC DECREASE IN GROSS PROFIT RATE TO 1.72% WAS THAT DURING THE YEAR HE CLOSED DOWN ITS BUSINES S. HOWEVER THIS EXPLANATION COULD NOT BE SUBSTANTIATED BY FURN ISHING THE 4 DETAILS OF SALES AND SUNDRY DEBTORS. THE APPELLANT HAS ALSO NOT MAINTAINED ANY STOCK REGISTER FROM WHICH SALES MADE BY THE APPELLANT COULD BE VERIFIED. THE AUDIT REPORT IN FO RM NO. 3CD IS ALSO A BLAND REPORT AND IN MOST OF THE COLUMNS THE AUDITOR HAS SIMPLY MENTIONED NIL OR NOT APPLICABLE. IN ITEM NO. 11 THE AUDITOR HAS MENTIONED METHOD OF ACCOUNTING AS MERCA NTILE EXCEPT FOR COMMISSION, INCENTIVES AND CREDIT CARD N OTES BUT NO SUCH ITEMS WERE FOUND DEBITED OR CREDITED IN THE PR OFIT AND LOSS ACCOUNT. IT IS, THEREFORE, HELD THAT THE AO WAS JUS TIFIED IN REJECTING THE BOOKS OF ACCOUNT. FURTHER, IN VIEW OF THE GROSS PROFIT RATES OF 6.88% AND 7.44% DECLARED BY THE APP ELLANT IN PRECEDING TWO YEARS THE GROSS PROFIT RATE OF 5% APP LIED BY THE AO IN RESPECT OF BUSINESS TURNOVER OF THE APPELLANT IS MORE THAN REASONABLE. UNDER THE CIRCUMSTANCES, ADDITION OF RS .9,30,587/- MADE BY THE AO IS CONFIRMED. GROUND IS DECIDED AGAI NST THE APPELLANT. 5.1 FROM THE ABOVE PARA FROM THE ORDER OF CIT(A), W E FIND THAT IT IS NOTED BY CIT(A) THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF SALES AND SUNDRY DEBTORS AND THE ASSESSEE HAS ALSO NOT MA INTAINED ANY STOCK REGISTER FROM WHICH THE SALES MADE BY THE ASSESSEE COULD BE VERIFIED. HE HAS ALSO NOTED THAT IN EARLIER TWO YEARS, THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE WAS 6.88% AND 7.44% AND AGAINST THIS F ACTUAL BACKGROUND, ADOPTION OF 5%, GROSS PROFIT RATE IN THE PRESENT YE AR IS QUITE REASONABLE IN THE FACTS OF THE PRESENT CASE AND HENCE, ON THIS IS SUE, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF CIT(A). 5.2 REGARDING THE SECOND ISSUE OF DISALLOWANCE OF R S.57,988/- OUT OF TELEPHONE EXPENSES, WE FIND THAT THIS DISALLOWANCE IS TO THE EXTENT OF ONLY 5% OF THE TOTAL TELEPHONE EXPENSES. IT IS NOT THE CASE OF THE ASSESSEE THAT THE ASSESSEE IS MAINTAINING SEPARATE TELEPHONE FOR USE FOR PERSONAL PURPOSES AND THEREFORE, IN THE FACTS OF THE PRESENT CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE ALSO . 5.3 REGARDING THE THIRD ISSUE I.E. DISALLOWANCE OF RS.3,92,660/- OUT OF TRAVELLING EXPENSES, WE FIND THAT IT IS NOTED BY CI T(A) IN PARA 5 OF HIS ORDER 5 THAT THE ASSESSEE NEITHER FURNISHED ANY BILL/TICKET NOR EXPLAINED THE PURPOSE OF THE TRAVELS UNDERTAKEN NOR SUBMITTED THE COPIES OF HIS PASSPORT AND THOSE OF HIS FAMILY MEMBERS. THIS IS SETTLED POSIT ION OF LAW THAT WHEN THE ASSESSEE MAKES CLAIM OF DEDUCTION OF AN EXPENDITURE , HE HAS TO ESTABLISH THAT THE EXPENDITURE WAS IN FACT INCURRED AND THE S AME WAS FOR BUSINESS PURPOSES. WHEN THE ASSESSEE HAS NOT FURNISHED THE COPY OF PASSPORT OF SELF AND FAMILY MEMBERS AND HAS NOT EXPLAINED THE P URPOSE OF TRAVEL, IT CANNOT BE ACCEPTED THAT THE EXPENSES INCURRED ARE F OR BUSINESS PURPOSE. HENCE, ON THIS ISSUE ALSO, WE FIND NO INFIRMITY IN THE ORDER OF LEARNED CIT(A) AND DECLINE TO INTERFERE WITH THE SAME. 5.4 THE NEXT ISSUE IS REGARDING CONFIRMING OF DISAL LOWANCE OF RS.1,67,608/- ON ACCOUNT OF DEPRECIATION. IT IS NO TED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT AS PER COPY OF LEDGER ACCOUNT OF FURNITURE FILED BY THE ASSESSEE, ALL THE PAYMENTS TO THE TUNE OF RS.64,46,016/- TOWARDS ADDITION IN FURNITURE ACCOUN T HAS BEEN SHOWN TO BE MADE IN CASH. THE ASSESSING OFFICER FURTHER NOTED THAT THE PURPOSE OF INVESTING SUCH AN AMOUNT WHEN THE BUSINESS WAS BEIN G CLOSED DOWN, REMAINED UNEXPLAINED. THEREFORE, THE ASSESSING OFF ICER MADE THE DISALLOWANCE OF DEPRECIATION ON FURNITURE OF RS.1,5 7,633/-. IN ADDITION TO THIS, HE ALSO MADE DISALLOWANCE OF DEPRECIATION ON COMPUTER AND GENERATORS OF RS.8,100/- AND 1,875/- RESPECTIVELY. IN OUR CONSIDERED OPINION, DISALLOWANCE OF DEPRECIATION ON OLD ASSETS I.E. COMPUTER AND GENERATOR IS NOT JUSTIFIED WHEN THE BUSINESS WAS NO T CLOSED IN THE PRESENT YEAR AND IT WAS CARRIED OUT BY WAY OF SALE OF PENDI NG STOCK. HENCE, THIS DISALLOWANCE IS DELETED BUT DISALLOWANCE OF DEPRECI ATION ON FURNITURE IS CONFIRMED BECAUSE THIS IS THE CLAIM OF THE ASSESSEE THAT THE ADDITION OF RS.64,46,016/- WAS MADE TO FURNITURE IN THE PRESENT YEAR AND THE ENTIRE PAYMENT WAS MADE IN CASH. THE OBJECTION OF THE ASS ESSING OFFICER IS QUITE STRONG THAT WHEN THE ASSESSEE IS CLOSING DOWN THE B USINESS THEN WHAT IS 6 THE PURPOSE OF MAKING SUCH HUGE INVESTMENT. HENCE, WE CONFIRM THE DISALLOWANCE OF RS.1,57,633/- BEING DEPRECIATION ON FURNITURE IN VIEW OF FACTS DISCUSSED ABOVE. 5.5 THE NEXT ISSUE IS REGARDING DISALLOWANCE OF RS. 1.85 LAC OUT OF CLAIM OF RS.2.17 LAC ON ACCOUNT OF LEGAL AND PROFESSIONAL EXPENSES. AS PER THE ASSESSMENT ORDER, THE ASSESSING OFFICER MADE TOTAL DISALLOWANCE OF RS.2.17 LAC ON THE BASIS THAT THE ASSESSEE DID NOT PRODUCE A SINGLE BILL/VOUCHER. THE CIT(A) HAS ALLOWED PART RELIEF OF RS.32,000/- B EING THE AMOUNT PAID TO ARSAN AND COMPANY, CHARTERED ACCOUNTANTS AND THE AU DITOR OF THE ASSESSEE. REGARDING THE BALANCE AMOUNT OF RS.1.85 LAC, IT IS NOTED BY CIT(A) IN PARA 7.1 OF HIS ORDER THAT IT IS NOT KNOW N AS TO WHETHER THE EXPENSES HAVE BEEN INCURRED FOR BUSINESS PURPOSE AN D ARE OF REVENUE NATURE. CONSIDERING THE FACTS OF THE PRESENT CASE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) ON THIS ISSUE ALSO. 5.6 THE NEXT ISSUE IS REGARDING DISALLOWANCE OF RS. 2.56 LAC U/S 40A(IA) OF THE ACT. WE FIND THAT IT IS NOTED BY CIT(A) IN PAR A 8.1 OF HIS ORDER THAT THE ASSESSEE IS A SPECIFIED PERSON AS PER EXPLANATION T O SECTION 194C AS THE ASSESSEE WAS LIABLE TO GET HIS ACCOUNTS AUDITED U/ S 44AB FOR THE FINANCIAL YEAR 2006-07. HE HAS ALSO NOTED THAT THIS WAS THE ONLY EXPLANATION OF THE ASSESSEE THAT SINCE THE ASSESSEE IS INDIVIDUAL, THE ASSESSEE IS NOT REQUIRED TO DEDUCT TDS U/S 194C OF THE ACT. AS PER EXPLANAT ION BELOW SUB SECTION 7 OF SECTION 194C, AN INDIVIDUAL ASSESSEE WHO IS LIAB LE TO GET HIS ACCOUNTS AUDITED U/S 44AB DURING THE FINANCIAL YEAR IMMEDIAT ELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH SUM CREDITED OR PAID T O A CONTRACTOR IS LIABLE TO DEDUCT TDS U/S 194C. HENCE, THE PROVISION OF SECTI ON 194C WAS APPLICABLE TO THE ASSESSEE BECAUSE A CLEAR FINDING HAS BEEN GI VEN BY CIT(A) THAT IN FINANCIAL YEAR 2006-07, THE ASSESSEE WAS LIABLE TO GET HIS ACCOUNTS AUDITED U/S 44AB. ON THIS ISSUE, WE DO NOT FIND ANY INFIRM ITY IN THE ORDER OF CIT(A). 7 5.7 THE NEXT ISSUE RELATES TO THE ADDITION OF RS.1, 25,030/- ON ACCOUNT OF DIFFERENCE IN CAPITAL ACCOUNT. IN THIS REGARD, WE FIND THAT THE ASSESSING OFFICER HAS NOTED IN PARA 8 OF HIS ORDER THAT AS PE R CAPITAL ACCOUNT OF THE ASSESSEE, SUBMITTED BY ASSESSEES COUNSEL SHRI SWAD HIN MISHRA, CHARTERED ACCOUNTANT ON 10/12/2010, THE AMOUNT OF NET PROFIT TRANSFERRED TO CAPITAL ACCOUNT IS RS.10,39,279/- WHILE AS PER PROFIT & LOS S ACCOUNT, THE NET PROFIT HAS BEEN SHOWN AT RS.9,14,248/- RESULTING IN DIFFER ENCE OF RS.1,25,030/-. NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE CIT (A), THIS DIFFERENCE COULD BE RECONCILED BY THE ASSESSEE AND THE SAME WAS NOT EXPLAINED BY THE ASSESSEE. UNDER THESE FACTS, WE DO NOT FIND ANY RE ASON TO INTERFERE IN THE ORDER OF CIT(A) ON THIS ISSUE ALSO. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS PARTLY ALLOWED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:03/02/2016 *SINGH COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. REGIS TRAR