Shikari Viswanatham, Hyderabad V. ITO, Karimnagar

ITA 327/HYD/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61861 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 01-02-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 06-03-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS G V HEMALATHA DEVI
• Assessee Lawyers: S RAMA RAO
• Keywords: Revised return
• Section: 43B; 40A(3); 133A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER I.T.A. NO. 326/HYD/2009 A.Y. 2000-01 I.T.A. NO. 327/HYD/2009 A.Y. 2001-02 I.T.A. NO. 328/HYD/2009 A.Y. 2002-03 I.T.A. NO. 329/HYD/2009 A.Y. 2003-04 I.T.A. NO. 330/HYD/2009 A.Y. 2004-05 I.T.A. NO. 331/HYD/2009 A.Y. 2005-06 I.T.A. NO. 1340/HYD/2011 A.Y. 2006-07 SHRI SHIKARI VISWANATHAM KARIMNAGAR PAN: AVKPS7019N VS. INCOME TAX OFFICER WARD-4 KARIMNAGAR APPELLANT RESPONDENT APPELLANT BY: SHRI S. RAMA RAO RESPONDENT BY: MRS. G.V. HEMALATHA DEVI DATE OF HEARING: 20.03.2012 DATE OF PRONOUNCEMENT: 30.04.2012 O R D E R PER CHANDRA POOJARI, AM: ALL THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGA INST THE DIFFERENT ORDERS OF THE CIT(A) FOR THE ABOVE ASSESSMENT YEARS . 2. THE CRUX OF COMMON GROUNDS IN THESE APPEALS ARE WI TH REGARD TO ESTIMATION OF INCOME OF THE ASSESSEE AT 8% OF GROSS RECEIPTS AND SUSTAINING ADDITIONS RELATING TO NON-PAYMENT OF SAL ES TAX COLLECTED BY THE ASSESSEE BY INVOKING THE PROVISIONS OF SECTION 43B OF INCOME TAX ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS AS DEALER OF PIAGGIO THREE WHEELER AUTOS A ND FROM PLYING OF TRUCKS. THE ASSESSEE IS THE PROPRIETOR OF M/S. GAR UDA MOTORS, KARIMNAGAR AND M/S. JAGATPRIYA AUTO AGENCIES, NIZAM ABAD. BOTH THESE CONCERNS ARE THE DEALERS OF PIAGGIO THREE WHEELER A UTOS. THE VIGILANCE WING OF COMMERCIAL TAX DEPARTMENT DETECTED HUGE SUP PRESSION OF SALES TURNOVER IN THE AFORESAID TWO CONCERNS. IN THE CON SEQUENT SURVEYS CONDUCTED U/S. 133A OF THE INCOME-TAX ACT ON 16.11. 2006 AND POST I.T.A. NOS. 326-331/HYD/2009 AND I.T.A. NO. 1340/HYD/2011 SHRI SHIKARI VISWANATHAM, KARIMNAGAR ============================== 2 SURVEY INVESTIGATION, SEVERAL DISCREPANCIES WERE NO TED IN RESPECT OF PURCHASE AND SALES OF THE SAID TWO CONCERNS. IN TH E REVISED RETURN S OF INCOME FILED IN COMPLIANCE OF NOTICES ISSUES U/S. 1 48, THE ASSESSEE ADMITTED THE SUPPRESSED TURNOVER AS DETERMINED BY T HE COMMERCIAL TAX DEPARTMENT AND DISCLOSED HIGHER PROFITS THEREON. O N VERIFICATION OF THESE REVISED RETURNS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS DISCLOSED ONLY 3% GROSS PROFIT ON THE TOTAL TURNOVE R AND ALSO FAILED TO DISCLOSE CERTAIN INCOMES RECEIVED BY WAY OF INTERES T, SERVICE CHARGES, HANDLING CHARGES AND COMMISSION ETC., WHICH WERE OF FERED TO TAX IN THE ORIGINAL RETURNS OF INCOME. THE REVISED RETURNS WE RE NOT SUPPORTED BY AUDIT REPORTS, THOUGH TURNOVER EXCEEDED RS. 40 LAKH S. IT WAS FURTHER OBSERVED FROM THE DOCUMENTS FOUND DURING THE SURVEY THAT THE ASSESSEE WAS SELLING VEHICLES AT 20% GROSS PROFIT. EVEN THE GROSS PROFIT SHOWN IN THE ORIGINAL RETURNS OF INCOME WAS @ 8-9%. THE ASS ESSEE WAS, THEREFORE, ASKED TO PRODUCE THE BOOKS OF ACCOUNT AND TO SHOW C AUSE WHY THE GROSS PROFIT SHOULD NOT BE ESTIMATED @ 20%. IN HIS EXPLA NATION, THE ASSESSEE SUBMITTED THAT THE GROSS PROFIT @ 20% SHOWN IN THE INVOICES INCLUDED THE SALES TAX @ 12%, COST OF TRANSPORTATION CHARGES TO BRING THE VEHICLE FROM FACTOR TO SHOWROOM AND THE COST OF SPARES AND ACCESSORIES. THIS EXPLANATION WAS REJECTED BY THE ASSESSING OFFICER F OR THE FOLLOWING REASONS: A) THE ASSESSEE FAILED TO PRODUCE BOOKS OF ACCOUNT IN SUPPORT OF HIS CLAIM/EXPLANATION EVEN AFTER GIVING REPEATED OP PORTUNITIES. B) THE PROFIT SHOWN IN THE REVISED RETURNS WERE NOT SU PPORTED BY AUDIT REPORTS. C) THE SALES TURNOVER AND PROFIT SHOWN IN THE ORIGINAL RETURN OF INCOME AND AUDIT REPORT FILED THEREWITH, WERE FOUND TO BE FALSE DUE TO HUGE SUPPRESSION OF TURNOVER AS ADMITT4ED BY THE ASSESSEE. D) THE ASSESSEES EXPLANATION THAT CERTAIN VEHICLES WE RE SOLD AT COST PRICE AND HENCE NOT DISCLOSED IN THE BOOKS OF ACCOUNT, IS NOT SUPPORTED BY ANY EVIDENCE. THE ASSESSEE HAD CO LLECTED THE SALES TAX ON ALL SALES BUT SUCH SALES WERE ALSO NOT DISCLOSED FOR I.T.A. NOS. 326-331/HYD/2009 AND I.T.A. NO. 1340/HYD/2011 SHRI SHIKARI VISWANATHAM, KARIMNAGAR ============================== 3 SALES TAX PURPOSES. THIS INDICATED THE ASSESSEES INTENTION TO SUPPRESS THE SALES TO EVADE THE TAXES. E) THE ASSESSEE COULD NOT PRODUCE ANY BILLS/VOUCHERS T O SUBSTANTIATE THE TRANSPORTATION EXPENSES AND INCLUS ION OF SPARES/ACCESSORIES IN THE SALE INVOICE OF THREE WHE ELERS. 4. HOWEVER, THE ASSESSING OFFICER ACCEPTED THE CLAIM O F THE ASSESSEE THAT THE INVOICE PRICE INCLUDED THE SALES TAX @ 12% . THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 145 OF TH E ACT AND AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE ESTI MATED THE GROSS PROFIT @ 8% OF THE TOTAL TURNOVER INCLUDING THE SUPPRESSED TURNOVER. IN THE A.Y. 2000-01, THE ASSESSING OFFICER ESTIMATED THE G ROSS PROFIT @ 95 SINCE THE SAID GP RATE WAS ADMITTED BY THE ASSESSEE IN TH E ORIGINAL RETURN OF INCOME. THE DIFFERENCE IN THE GROSS PROFIT DETERMI NED BY THE ASSESSING OFFICER AND THAT SHOWN BY THE ASSESSEE IN THE REVIS ED RETURNS OF INCOME WAS ADDED AS UNDISCLOSED INCOME OF THE ASSESSEE. IN ADDITION TO THIS, THE ASSESSING OFFICER ADDED SALES TAX PAYABLE WHICH WAS WORKED OUT ON THE BASIS OF ASSESSMENT ORDER PASSED BY THE COMMERC IAL TAX DEPARTMENT AS INCOME OF THE ASSESSEE. 5. ON APPEAL, THE CIT(A) CONFIRMED THE ESTIMATION OF I NCOME AT 8%. FURTHER HE HAS ALSO CONFIRMED THE ADDITION OF SALES TAX COLLECTED WHICH WAS NOT PAID TO THE GOVERNMENT. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. IN THESE CASES, BOOKS OF ACCOUNT OF THE AS SESSEE ARE REJECTED AND INCOME WAS ESTIMATED BY THE ASSESSING OFFICER AT 8% OF THE TURNOVER. AFTER ESTIMATING THE INCOME OF THE ASSESSEE, THE AS SESSING OFFICER FURTHER MADE ADDITION TOWARDS SALES TAX WHICH IS ON THE BAS IS OF ASSESSMENT ORDER PASSED BY THE COMMERCIAL TAX DEPARTMENT. IN CERTAIN CASES, THERE WAS ALSO ADDITION TOWARDS TRANSPORTATION CHAR GES ON THE REASON THAT THE ASSESSEE COULD NOT PRODUCE THE VOUCHERS IN SUPPORT OF THE TRANSPORTATION EXPENSES. I.T.A. NOS. 326-331/HYD/2009 AND I.T.A. NO. 1340/HYD/2011 SHRI SHIKARI VISWANATHAM, KARIMNAGAR ============================== 4 7. IT IS ADMITTED FACTS THAT THE ASSESSEE DID NOT PROD UCE BOOKS OF ACCOUNT IN SUPPORT OF THE CLAIM OF EXPENDITURE AND THE ASSESSEE IS SELLING THE VEHICLES AT 20% OF THE GROSS PROFIT. I T IS ALSO AN ADMITTED FACT THAT THE ASSESSEE IS SUPPRESSING THE TURNOVER AND F AILED TO PRODUCE THE BOOKS OF ACCOUNT IN SPITE OF GIVING SEVERAL OPPORTU NITIES. WHEN THE ASSESSEE CLAIMED ANY EXPENDITURE, IT IS MANDATORY O N THE PART OF THE ASSESSEE TO PRODUCE BOOKS OF ACCOUNT SUPPORTED BY P ROPER BILLS AND VOUCHERS. SINCE THE ASSESSEE HAS NOT PRODUCED PROP ER BOOKS OF ACCOUNT, TRUE PROFITS OR LOSS CANNOT BE ASCERTAINED BY THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAVING NO OTHER O PTION HAS TO ESTIMATE THE INCOME ON THE BASIS OF THE AVAILABLE RECORD. IN THESE CIRCUMSTANCES, REJECTION OF BOOKS OF ACCOUNT AND ESTIMATION OF INC OME OF THE ASSESSEE IS JUSTIFIED. HOWEVER, FURTHER ADDITION TOWARDS SALES TAX COLLECTION IS NOT CORRECT AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL CONSTRUCTIONS VS. CIT (232 ITR 776) (AP). THEIR LO RDSHIPS OF THE HIGH COURT HELD AS UNDER: HELD , REVERSING THE ORDER OF THE TRIBUNAL, THAT THERE W AS A BIG DIFFERENCE BETWEEN PROFIT EARNED WITH OWN CAPIT AL AND PROFIT EARNED WITH BORROWED CAPITAL AND SUCH A DIFF ERENCE COULD HAVE BEEN TAKEN INTO ACCOUNT BY THE INCOME-TA X OFFICER WHILE MAKING AN ESTIMATE. IF THE COMMISSIONER HAD SET ASIDE THE ESTIMATE ON THE GROUND THAT THE VITAL FAC T THAT THE BUSINESS WAS CARRIED ON WITH OWN CAPITAL AND NOT WI TH BORROWED CAPITAL HAD BEEN IGNORED BY THE INCOME-TAX OFFICER, THERE MIGHT NOT HAVE BEEN ANY DIFFICULTY IN UPHOLDI NG THAT ORDER. BUT WHEN HE PROPOSED TO ADD BACK AN EXACT I TEM IN THE PROFIT AND LOSS ACCOUNT, HE WAS RELYING ON THE REJECTED BOOKS, WHICH HE COULD NOT DO. THERE WAS ALSO A FUR THER DIFFICULTY IF SECTION 40 WAS TO BE TAKEN INTO ACCOU NT EVEN AFTER MAKING AN ESTIMATE. WHEN THERE ARE CERTAIN O THER DEDUCTIONS WHICH ARE TO BE DISALLOWED AS WEALTH-TAX PAYMENT IN SECTION 40, IT CANNOT BE SAID THAT AFTER MAKING AN ESTIMATE THE WEALTH-TAX CHARGED IN THE PROFIT AN D LOSS ACCOUNT SHOULD AGAIN BE ADDED BACK IN TO THE PROFIT . THEREFORE, IT WAS NOT CORRECT IN LAW TO MAKE THE SE PARATE ADDITION OF RS. 63,859 REPRESENTING THE INTEREST AN D REMUNERATION PAID TO THE PARTNERS TO THE INCOME ALR EADY ESTIMATED AND ASSESSED FROM CONTRACTS. 8. IT IS CLEAR FROM THE ABOVE JUDGEMENT THAT WHERE THE BOOKS OF ACCOUNT HAVE BEEN REJECTED THE REVENUE CANNOT RELY ON THE SAME BOOKS OF ACCOUNT FOR MAKING ANY OTHER ADDITION. IT WAS A LSO HELD THAT WHEN AN I.T.A. NOS. 326-331/HYD/2009 AND I.T.A. NO. 1340/HYD/2011 SHRI SHIKARI VISWANATHAM, KARIMNAGAR ============================== 5 ESTIMATE IS MADE TOWARDS INCOME OF THE ASSESSEE, IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMPUTED U/S. 29 AND IN OT HER WORDS, ALL THE DEDUCTIONS WHICH ARE REFERRED TO U/S. 29 ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT, WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN SECTION 40 IS ALSO TAKEN INTO ACCOUNT. IT HAS BEEN HELD IN THE CONCLUDING PARAS OF 4 AND 5 OF THE JUDG EMENT OF HIGH COURT CITED SUPRA, AS FOLLOWS: 4. THE PATTERN OF ASSESSMENT UNDER THE IT ACT IS G IVEN BY S. 29 WHICH STATES THAT THE INCOME FROM PROFITS AND GA INS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SS. 30 TO 43D. SEC. 40 PRO VIDES FOR CERTAIN DISALLOWANCES IN CERTAIN CASES NOTWITHSTAND ING THAT THOSE AMOUNTS ARE ALLOWED GENERALLY UNDER OTHER SEC TIONS. THE COMPUTATION UNDER S. 29 IS TO BE MADE UNDER S. 145 ON THE BASIS OF THE BOOKS REGULARLY MAINTAINED BY THE ASSESSEE. IF THOSE BOOKS ARE NOT CORRECT OR COMPLETE, THE INC OME TAX OFFICER MAY REJECT THOSE BOOKS AND ESTIMATE THE INC OME TO THE BEST OF HIS JUDGEMENT. WHEN SUCH AN ESTIMATE I S MADE IT IS IN SUBSTITUTION OF THE INCOME THAT IS TO BE COMP UTED UNDER S. 29. IN OTHER WORDS, ALL THE DEDUCTIONS WHICH AR E REFERRED TO UNDER S. 29 ARE DEEMED TO HAVE BEEN TAKEN INTO A CCOUNT WHILE MAKING SUCH AN ESTIMATE. THIS WILL ALSO MEAN THAT THE EMBARGO PLACED IN S. 40 IS ALSO TAKEN INTO ACCOUNT. 5. NO DOUBT THERE IS BIG DIFFERENCE BETWEEN PROFIT EARNED WITH OWN CAPITAL AND PROFIT EARNED WITH BORROWED CA PITAL AND SUCH A DIFFERENCE COULD HAVE BEEN TAKEN INTO AC COUNT BY THE INCOME TAX OFFICER WHILE MAKING AN ESTIMATE. IF THE CIT HAD SET ASIDE THE ESTIMATE ON THE GROUND THAT THE V ITAL FACT THAT THE BUSINESS WAS CARRIED ON WITH OWN CAPITAL A ND NOT WITH BORROWED CAPITAL HAS BEEN IGNORED BY THE ITO, THERE MAY NOT HAVE BEEN ANY DIFFICULTY IN UPHOLDING THAT ORDER. BUT, WHEN HE PROPOSES TO ADD BACK AN EXACT ITEM IN THE P&L A/C, HE WAS RELYING ON THE REJECTED BOOKS WHICH HE COULD NOT DO SO AS HELD BY THE BENCH OF THIS COURT IN MADDI SUDARSANAM OIL MILLS CO. VS. CIT (SUPRA). THERE IS ALSO A FURTHER DIFFICULTY IF S. 40, AS ARGUED BY LEARNED C OUNSEL, IS TO BE TAKEN INTO ACCOUNT EVEN AFTER MAKING AN ESTIMATE . WHEN THERE ARE CERTAIN OTHER DEDUCTIONS WHICH ARE TO BE DISALLOWED SUCH AS WEALTH-TAX PAYMENT IN S. 4, CAN IT BE SAID THAT AFTER MAKING AN ESTIMATE, THE WEALTH-TAX CHARGED IN THE P&L A/S SHOULD AGAIN BE ADDED BACK TO THE PR OFIT. THIS EXAMPLE, ILLUSTRATES HOW THE CONTENTION OF THE REVENUE, THAT S. 40(B) MAKES A DIFFERENCE IN THE SITUATION, IS UNTENABLE.. THE ABOVE DECISION OF THE ANDHRA PRADESH HIGH COURT HAS BEEN FOLLOWED AND A SIMILAR VIEW HAS BEEN TAKEN BY THE I.T.A. NOS. 326-331/HYD/2009 AND I.T.A. NO. 1340/HYD/2011 SHRI SHIKARI VISWANATHAM, KARIMNAGAR ============================== 6 SPECIAL BENCH (KOLKATA) OF THIS TRIBUNAL IN THE CAS E OF INCOME TAX OFFICER VS. KENARAM SAHA & SUBHASH SAHA (2008) 116 TTJ (KOL) (SB) 289; (2008) 8 DTR (KOL) (SB) (TRIB) 124; (2008) 301ITR 171 (KOL) (SB) (AT) WHEREIN DISALLOWANCE MAD E IN TERMS OF S. 40A(3) HAS BEEN DELETED. 9. HENCE, IN OUR OPINION, ESTIMATION OF INCOME AT 6% OF TURNOVER IS APPROPRIATE AND REASONABLE INSTEAD OF 8%. WE ARE C ONSIDERING THE NET PROFIT AT 6% OF THE GROSS RECEIPTS AS THE ASSESSEE HAD TO INCUR CERTAIN EXPENDITURE TOWARDS TRANSPORTATION OF VEHICLES, SPA RES/ACCESSORIES, TEMPORARY LICENCE, RTO EXPENSES, WORKERS SALARY AN D DAY TO ADMINISTRATIVE EXPENSES. ACCORDINGLY, IN OUR OPINI ON, THE ESTIMATE OF INCOME BY THE ASSESSING OFFICER AT 8% OF THE TURNOV ER IS ON VERY HIGHER SIDE IN THIS LINE OF BUSINESS AND DIRECT THE ASSESS ING OFFICER TO CONSIDER THE SAME AT 6% OF SALE INVOICE VALUE IN ALL THESE A SSESSMENT YEARS. FURTHER, WE MAKE IT CLEAR THAT THE RECEIPTS LIKE IN TEREST ON DEPOSITS, SERVICING CHARGE/CREDIT NOTES, HANDLING CHARGES AND COMMISSION CAN NOT FORM PART OF TURNOVER TO DETERMINE THE ESTIMATION O F INCOME AT 6%. THESE ITEMS TO BE CONSIDERED SEPARATELY IN ITS ENTIRETY A S INCOME OF THE ASSESSEE IN RESPECTIVE ASSESSMENT YEARS AND THE ASS ESEE WOULD NOT GET ANY DEDUCTION TOWARDS ANY EXPENSES TO EARN THESE EL EMENT OF INCOME AS THE SAME ARE TAKEN CARE BY REGULAR BUSINESS EXPENSE S WHILE ESTIMATING THE INCOME AT 6% OF THE TURNOVER. REGARDING ADDITI ON TOWARDS SALES TAX UNDER SECTION 43B, THIS CANNOT BE MADE IN VIEW OF J UDGEMENT OF JURISDICTIONAL HIGH COURT CITED SUPRA. 10. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH APRIL, 2012. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 30 TH APRIL, 2012 I.T.A. NOS. 326-331/HYD/2009 AND I.T.A. NO. 1340/HYD/2011 SHRI SHIKARI VISWANATHAM, KARIMNAGAR ============================== 7 COPY FORWARDED TO: 1. SHRI SHIKARI VISWANATHAM, KARIMNAGAR C/O. SHRI S . RAMA RAO, ADVOCATE, FLAT NO. 103, H. NO. 3-6-542/4, INDI RADEVI NILAYAM, ST. NO. 7, HIMAYATNAGAR, HYDERABAD-500 029 . 2. THE INCOME TAX OFFICER, WARD-4, KARIMNAGAR. 3. THE CIT(A)-III, HYDERABAD 4. THE CIT-II, HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD. TPRAO