The ACIT, Circle-7, Surat V. M/s. Silkwala Dyeing & Printing Mills, Surat

ITA 2988/AHD/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51035 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 01-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 22-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRS PRAKRUTI UPADHYAY
• Keywords: Business income; Depreciation; Revised return
• Section: 133A

Judgement Text

ITA NO.2 988/AHD/2008 ASSESSMENT YEAR 2 005-06 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD (BEFORE SHRI D.K. TYAGI, J.M. & A. K. GARODIA A.M.) I. T.A. NO. 2988 /AHD/2008 (ASSESSMENT YEAR : 200 5-2006) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-7, ROOM NO.622, 6 TH FLOOR, AAYAKAR BHAVAN, MAJURA GATE, SURAT (APPELLANT) VS. M/S. SILKWALA DYEING & PRINTING MILLS, GULAMBABA MILL COMPOUND, OPP. RAILWAY STATION, SURAT. (RESPONDENT ) PAN: AAFJS 8597 H APPELLANT BY : MR. JAMES KURIAN, D.R. RESPONDENT BY : MRS. PRAKRUTI UPADHYAY ( )/ ORDER DATE OF HEARING : 1-12-2011 DATE OF PRONOUNCEMENT : 21-12-11 PER: SHRI D. K. TYAGI, J.M. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER PASSED BY THE LD. CIT (A)-IV, SURAT IN APPEAL NO.CAS-IV/85/07-08 DATED 20 -6-2008 FOR THE ASSESSMENT YEAR 2005-06. 2. GROUND NO.1 OF THE APPEAL READ AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A)-IV SURAT HAS ERRED IN DIRECTING THE AO TO ADOP T THE TOTAL INCOME AT ITA NO.2 988/AHD/2008 ASSESSMENT YEAR 2 005-06 2 RS.32,92,045/- AS AGAINST RS.36,92,629/- ADOPTED BY HIM RESULTING IN A RELIEF OF RS.4,00,584/-. 3. BRIEF FACTS OF THE CASE ARE THAT A SURVEY OPERAT ION U/S. 133A OF THE I.T.ACT WAS CONDUCTED ON THE BUSINESS PREMISES OF THE ASSES SEE ON 3-3-2005. DURING THIS SURVEY OPERATION THE ASSESSEE ADMITTED UNDISCLOSED INVESTMENT IN STOCK AND UNACCOUNTED RECEIPTS OF RS.22,22,825/-. DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT GROSS PROFIT DISCLOSED BY THE ASSESSE E WAS LOWER BY 4.87% IN COMPARISON TO PRECEDING YEAR AND THE JOB RECEIPTS W ERE NOT COMMENSURATE WITH THE CONSUMPTION OF ELECTRICITY AND QUANTITY OF COLOUR A ND CHEMICALS USED MONTH TO MONTH. ACCORDING TO THE AO THE ASSESSEE WAS ALSO MA KING UNACCOUNTED JOB WORK AND THEREFORE, RELYING ON THE DECISION OF HONBLE I TAT AHMEDABAD BENCH IN THE CASE OF GOYAL SILK MILLS PVT. LTD., IN ITA NO.2922/ AHD/95 DATED 23-6-2003, THE AO HELD THAT THE ASSESSEES INCOME SHOULD HAVE BEEN RS.22,22,825/- PLUS INCOME WORKED OUT ON THE BASIS OF LAST YEARS FINANCIAL RE SULTS. HE, THEREFORE, REJECTED THE BOOK RESULTS SHOWN BY THE ASSESSEE AND MADE ADDITIO N BY ESTIMATING GP ON THE BASIS OF PRECEDING YEARS RESULT. ACCORDINGLY, GP W AS ESTIMATED AT RS.14,69,804/- AND AFTER INCLUDING THE DISCLOSURE OF RS.22,22,825/ -, THE TOTAL INCOME WAS DETERMINED AT RS.36,92,629/-. 4. BEFORE THE LD. CIT (A), THE SUBMISSION OF THE AS SESSEE WAS THAT THE GP IN THE PRE-SURVEY PERIOD WAS ONLY 1.71%, EVEN IF THE S TOCK WORKED OUT BY THE SURVEY PARTY WAS CONSIDERED AND IF THE JUDGMENT OF THE HON BLE ITAT CITED BY THE AO WAS FOLLOWED THE GP WAS TO BE TAKEN FOR THE CURRENT YEAR AND NOT FOR THE EARLIER YEARS. IT WAS ALSO ARGUED THAT COMPLETE DETAILS WE RE FURNISHED BEFORE THE AO AND NO REASONS WERE GIVE FOR REJECTION OF THE BOOK RESU LT AND IT WAS ONLY IN PARA 20 AND 22 OF THE ASSESSMENT ORDER THAT AO PRESUMED THAT SI NCE PROFIT WAS LESSER IN THE CURRENT YEAR THE TOTAL INCOME WAS TO BE TAKEN AT GP RATIO OF LAST YEAR IN THE CURRENT ITA NO.2 988/AHD/2008 ASSESSMENT YEAR 2 005-06 3 YEAR PLUS INCOME DISCLOSED DURING SURVEY WHICH WAS NOT PROPER ON THE PART OF AO IN VIEW OF THE FACT THAT ASSESSEE HAD MAINTAINED PR OPER BOOKS OF ACCOUNTS AND THEREFORE TO ESTIMATE THE CURRENT YEARS PROFIT ON THE BASIS OF LAST YEARS G.P. RATIO SHOULD NOT HAVE BEEN DONE. 5. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT (A) GAVE RELIEF TO THE ASSESSEE TO THE TUNE OF RS.4 ,00,584/-. 6. AGGRIEVED BY THIS ORDER OF THE LD. CIT(A) NOW THE R EVENUE IS IN APPEAL BEFORE US. AT THE TIME OF HEARING THE LD. DR REITER ATED THE CONTENTS OF THE ASSESSMENT ORDER WHILE THE LD. COUNSEL OF THE ASSES SEE RELIED ON THE ORDER OF LD. CIT (A). 7. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND THAT THE AO HAD ESTIMATED THE INCOME OF THE ASSESSEE BY TAKING GP SHOWN BY THE ASSESSEE DURING THE LAST YEAR BY ADDING INTO IT THE INCOME D ISCLOSED BY THE ASSESSEE AT THE TIME OF SURVEY OF RS.22,22,826/-. DURING THE APPEL LATE PROCEEDINGS, THE LD. CIT (A) FOUND THAT NET PROFIT DISCLOSED BY THE ASSESSEE DURING THE YEAR WAS LOSS WHILE DURING ASSESSMENT YEARS 2003-04 AND 2004-05 IT WAS 3.80% AND 3.08% RESPECTIVELY. HE ALSO FOUND THE REASONS GIVEN BY TH E ASSESSEE FOR FALL IN GP DURING THE YEAR UNDER APPEAL IN COMPARISON TO THE LAST YEA R AS GENUINE AND WAS OF THE VIEW THAT IF THE MISTAKE IN DEBITING THE DISCLOSED STOC K TO THE PROFIT AND LOSS ACCOUNT INSTEAD OF CREDITING THE SAME, G.P. WOULD BE 9% WHI CH WAS COMPARABLE TO THE EARLIER YEARS. IN VIEW OF THESE FACTS OF THIS CASE, HE ESTIMATED THE PROFIT OF THE ASSESSEE AFTER CONSIDERING ALL EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT AT 3.5% OF TOTAL TURNOVER WHICH ACCORDING TO US WAS A REASONABLE ESTIMATE ON THE PART OF LD. CIT (A) AND WORKS OUT TO RS.10,69,219/-. FOL LOWING THE DECISION OF HONBLE ITA NO.2 988/AHD/2008 ASSESSMENT YEAR 2 005-06 4 ITAT AHMEDABAD BENCH IN THE CASE OF GOYAL SILK MILL S PVT. LTD., THE ADDITION OF RS.22,22,825/- BEING THE INCOME DISCLOSED AT THE TI ME OF SURVEY WAS MAINTAINED BY THE LD. CIT (A). THUS, THE LD. CIT (A) GAVE RELIEF OF RS.4,00,584/- ONLY TO THE ASSESSEE. WE FIND NO INFIRMITY IN SUCH RELIEF BEING GIVEN BY HIM TO THE ASSESSEE AND THEREFORE, ORDER PASSED BY HIM IS HEREBY UPHELD. TH IS GROUND OF THE REVENUE IS DISMISSED. 8. GROUND NO.2 OF THE APPEAL READS AS UNDER:- 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A)-IV SURAT HAS ERRED IN ALLOWING SALARY AND INTER EST ON CAPITAL TO PARTNERS IN CONTRAVENTION TO THE PROVISIONS OF I. T. ACT, WI THOUT APPRECIATING THE FACT THAT NO SUCH CLAIM WAS MADE IN THE I.T. RETURN OR D URING ASSESSMENT PROCEEDINGS AND NO PAYMENT WAS MADE TO THE PARTNERS AS REQUIRED U/S. 40(B) OF THE I. T. ACT. 9. THE LD. CIT (A) SUO MOTTO AND ALLOWED THE CLAIM IN RESPECT OF SALARY AND INTEREST ON CAPITAL TO PARTNERS WHEN HE OBSERVED TH AT ASSESSEE HAS DECLARED LOSS WITHOUT CLAIMING STATUTORY DEDUCTION ON ACCOUNT OF DEPRECIATION, SALARY AND INTEREST TO PARTNERS CAPITAL ACCOUNT. HE WAS OF THE VIEW THA T THE CORRECT AND REASONABLE IN DETERMINATION OF THE INCOME IN THE CURRENT YEAR WOU LD BE IF THESE TWO DEDUCTIONS ARE ALLOWED TO THE ASSESSEE FOR DETERMINING THE TAX ABLE INCOME. HE, THEREFORE, DIRECTED THE A.O. TO ALLOW APPROPRIATE RELIEF ON TH IS ACCOUNT AS PER THE LAW. 10. THE LD. DR. AT THE TIME OF HEARING SUBMITTED TH AT LD. CIT (A) HAS NOT EVEN APPRECIATED THE FACT THAT NEITHER ANY PAYMENT WAS M ADE TO THE PARTNERS NOR ANY PROVISION WAS MADE IN THE BOOKS OF ACCOUNT IN THIS REGARD. IT WAS FURTHER SUBMITTED THAT NO SUCH CLAIM WAS MADE IN THE COMPUTATION OF I NCOME OR AT ANY OTHER STAGE ITA NO.2 988/AHD/2008 ASSESSMENT YEAR 2 005-06 5 DURING THE COURSE OF ASSESSMENT PROCEEDINGS BEFORE THE AO. THE CLAIM WAS FOR THE FIRST TIME BEFORE THE LD. CIT (A) WHICH WAS ALLOWED BY HIM. AS PER SECTION 40B(1) THE PERMISSIBLE CLAIM FOR DEDUCTION ON ACCOUNT OF S ALARY TO PARTNERS IS ONLY TO THE EXTENT OF SUCH PAYMENT ACTUALLY MADE, SUBJECT TO OT HER CONDITIONS IN ACCORDANCE TO THE PARTNERSHIP DEED AND NOT OTHERWISE. IN THE INST ANT CASE, THE ASSESSEE FIRM HAS NEITHER MADE PAYMENT NOR HAS IT PASSED ANY BOOK ENT RY TO CREDIT TO PARTNERS CAPITAL ACCOUNT. SIMILARLY, AS PER SECTION 40B (IV), THE P ERMISSIBLE DEDUCTION ON ACCOUNT OF INTEREST TO ANY PARTNERS IS ONLY TO THE EXTENT T O SUCH PAYMENT ACTUALLY MADE SUBJECT TO OTHER CONDITIONS AND NOT OTHERWISE. AS N O SUCH INTEREST PAYMENT HAS ACTUALLY BEEN MADE BY THE ASSESSEE NOR ANY PROVISIO N HAS BEEN MADE, THE LD. CIT (A) HAS ERRED IN ALLOWING THE DEDUCTION ON ACCOUNT OF SALARY AND INTEREST TO PARTNERS IN CONTRAVENTION OF THE SPECIFIC PROVISION S OF THE I. T. ACT. 11. THE LD. COUNSEL OF THE ASSESSEE, ON THE OTHER H AND DISPUTED THE CONTENTION OF LD. D.R. THAT NO CLAIM WAS MADE BY THE ASSESSEE EITHER IN COMPUTATION OF INCOME OR DURING THE ASSESSMENT PROCEEDINGS. ACCORD ING TO HER THOUGH IN ORIGINAL COMPUTATION OF INCOME, NO CLAIM FOR PARTNERS AND CA PITAL TO INTEREST WAS MADE BUT DURING THE COURSE OF ASSESSMENT PROCEEDINGS REVISED COMPUTATION OF INCOME WAS FILED BY THE ASSESSEE ALONG WITH THE REASON FOR NOT CLAIMING IT EARLIER. PLACING RELIANCE ON A JUDGMENT OF HONBLE MUMBAI ITAT IN TH E CASE OF CHANDRA ENTERPRISE VS. ITO IT WAS SUBMITTED THAT EVEN IF AS SESSEE IS IGNORANT, IT HAS TO BE BROUGHT TO HIS NOTICE AND STATUTORILY AVAILABLE DED UCTIONS MUST BE GRANTED BY ALLOWING HIM TO RECTIFY BOOK ENTRIES. SHE THEREFORE , PRAYED THAT THE ORDER PASSED BY THE LD. CIT (A) MAY KINDLY BE UPHELD. ITA NO.2 988/AHD/2008 ASSESSMENT YEAR 2 005-06 6 12. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORDS, WE FIND THAT PARAGRAPH-5 OF ASSESSEES LETTER ADDRESSED TO THE A .O. IN RESPONSE TO AOS SHOW CAUSE NOTICE DATED 22-11-2007 READS AS UNDER:- 5. THE DISCLOSED INCOME IS BUSINESS INCOME AS THE DISCLOSED AMOUNT COMPRISES OF STOCK IN TRADE PLUS BUSINESS CASH. AND PARTNERS INTEREST AND REMUNERATION ARE ADMISSIBLE DEDUCTION AS SECTION 40 (B) OF THE ACT. THE SAME WAS REQUIRED TO BE CLAIMED IN THE ROI BUT DUE TO IN ADVERTENCE ON THE PART OF THE CA, THE CLAIM WAS NOT MADE. I REQUEST YOU TO KI NDLY ALLOW THE SAME IN LIGHT OF THE PROVISIONS OF SEC. 40(B) OF THE ACT AN D OBLIGE. I AM ALSO ENCLOSING HEREWITH A REVISED COMPUTATION OF INCOME FOR A.Y. 2 005-06 IN ADDITION TO PARTNERS RETURN COPY FOR A.Y. 2005-06. YOUR GOOD S ELF IS ALSO REQUESTED TO PASS NECESSARY INFORMATION TO THE RESPECTIVE ITO, W HO IS MAKING ASSESSMENTS ON PARTNERS TO RECTIFY PARTNERS ASSESS MENT ACCORDINGLY.' 13. IT IS CLEAR FROM THE ABOVE THAT PERMISSIBLE DED UCTION U/S. 40(B) WAS CLAIMED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. THE LD. CIT (A) TAKING THIS INTO CONSIDERATION HAS DIRECTED THE AO TO ALLOW THE DEDUCTION AS PER LAW. THIS ACTION OF THE LD. CIT (A) IS IN INFIRMITY WITH THE DECISION OF THE HONBLE ITAT MUMBAI BENCH IN THE CASE OF CHANDRA ENTERPRISE VS. ITO WHEREIN THE TRIBUNAL HAS HELD AS UNDER:- WHENEVER THE INCOME ASSESSED IS HIGHER THAN THE INCOME RETURNED BY THE ASSESSEE FIRM OR THE ASSESSMENT HAS BEEN COMPLE TED ON HIGHER AMOUNT OF INCOME ON THE BASIS OF THE REVISED RETURN OF INCOME , THE ASSESSEE FIRM IS ENTITLED FOR CLAIMING THE PROPORTIONATE HIGHER AMOU NT OF REMUNERATION PAYABLE TO THE [PARTNERS. THIS IS NATURAL CONSEQUEN CE OF ASSESSING HIGHER AMOUNT OF INCOME. THE DIFFERENTIAL HIGHER AMOUNT OF REMUNERATION TO THE PARTNERS IN COMPARISON WITH THE HIGHER AMOUNT OF IN COME ASSESSED IN THE HANDS OF THE ASSESSEE FIRM COULD NOT BE DECLINED ON LY ON THE GROUND THAT THE AMOUNT OF REMUNERATION DEBITED IN THE BOOKS OF ACCO UNT OF THE ASSESSEE FIRM WAS LESS. IN FACT, THE ASSESSING OFFICER SHOULD GI VE THE ASSESSEE FIRM AN OPPORTUNITY TO PASS RECTIFICATION ENTRIES OR ADJUS TING ENTRIES IN THE BOOKS OF ACCOUNT COMMENSURATE WITH THE REVISED INCOME OF THE ASSESSEE FIRM. ITA NO.2 988/AHD/2008 ASSESSMENT YEAR 2 005-06 7 14. IN VIEW OF THE ABOVE WE FIND NO INFIRMITY IN TH E ORDER OF THE LD. CIT (A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 15. THIRD GROUND OF APPEAL READ AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), SURAT HAS ERRED IN DELETING THE DISALLOWANCE OF RS. 3,00,614/- OUT OF THE ELECTRICITY EXPENSES OF RS. 78,96,330/- THOUGH THE ELECTRICITY CONNECTIONS ARE OWNED BY INDIVIDUALS ON THE REASONING THAT THEY ARE THE PARTNERS OF THE FIRM. 16. THE ASSESSING OFFICER DURING THE ASSESSMENT PRO CEEDINGS OBSERVED THAT THE TOTAL RS.78,96,330/- WAS DEBITED AS ELECTRICITY CHA RGES BUT BILLS AMOUNTING TO RS.30,06,140/- WERE NOT IN THE NAME OF THE ASSESSEE BUT FOUR OTHER PARTIES. IN RESPONSE TO THE QUERY RAISED BY THE AO IT WAS SUBMI TTED THAT THERE WAS HIGHER POWER TARRIF FOR CONSUMPTION OF MORE POWER AND AS S UCH DIFFERENT CONNECTIONS WERE TAKEN IN THE PAST AND SUBSEQUENTLY ALL THE UNI TS INDIVIDUALLY OWNED HAVING ELECTRICITY CONNECTIONS WERE CLOSED AND THESE INDIV IDUALS WERE NOW EXISTING PARTNERS OF THE ASSESSEE FIRM. IT WAS FURTHER SUBMI TTED THAT SUCH ELECTRICITY CHARGES WERE NOT PAID OUT OF FUND OF OTHER CONCERNS. THE AO DID NOT ACCEPT THIS EXPLANATION OFFERED BY THE ASSESSEE AND HELD THAT I T COULD NOT BE RULED OUT THAT THESE SERVICES NUMBERS WERE USED BY THE PARTIES FOR THEIR PERSONAL ACTIVITIES AND THEREFORE, DISALLOWED 10% OF THE TOTAL CLAIM. 17. BEFORE THE LD. CIT (A) ASSESSEES SUBMISSION WA S THAT ENTIRE PAYMENT FOR THE ELECTRICITY CHARGES WAS MADE BY ACCOUNT PAYEE C HEQUES BY THE ASSESSEE AND THE AO MADE THE DISALLOWANCE ONLY ON SURMISES AND C ONJECTURES. THE OTHER ITA NO.2 988/AHD/2008 ASSESSMENT YEAR 2 005-06 8 CONNECTION-HOLDERS WERE NOW PARTNERS IN THE FIRM AN D WERE HAVING ONLY SHARE INCOME FROM THE FIRM. AFTER TAKING INTO CONSIDERATI ON THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT (A) DELETED THE ADDITION. 18. BEFORE US THE DR RELIED ON THE ORDER OF THE AO AND AR RELIED ON THE ORDER OF THE LD. CIT (A). 19. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORDS, WE FIND THAT AO HAS MADE THIS DISALLOWANCE BY HOLDING THAT ASSESSEE DID NOT MAKE ANY ATTEMPT TO TRANSFER THE SERVICE NUMBERS IN ITS OWN NAME FOR A LONG TIME AND THAT IT WAS POSSIBLE THAT THESE NUMBERS WERE BY THE PARTIES FO R THEIR PERSONAL ACTIVITIES. THIS FINDING OF THE AO IS NOT ON THE BASIS OF ANY MATERI AL ON RECORD, THEREFORE NO DISALLOWANCE ON THIS ACCOUNT SHOULD HAVE BEEN MADE BY HIM. THE LD. CIT (A) HAS RIGHTLY DELETED THIS ADDITION. THEREFORE, THE ORDER PASSED BY THE LD. CIT (A) IS HEREBY UPHELD. THIS GROUND OF THE REVENUE IS DISMI SSED. 20. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 21 12 - 2011. SD/- SD/- (A. K. GARODIA) (D. K.TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD. S.A.PATKI. ITA NO.2 988/AHD/2008 ASSESSMENT YEAR 2 005-06 9 COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-IV, SURAT. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 09 - 12 -2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 12 /12 / 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 13 - 12 -2011. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 21 - 12 -2011 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 21 - 12 -2011 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 21 - 12 -2011. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..