ACIT, UDAIPUR V. Shri Suresh Kumar Agarwal, DUNGARPUR

ITA 328/JODH/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7801 (ITAT-JODHPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 17-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 10-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Keywords: Business income; Depreciation; Principle of natural justice; Corroborative evidences; Revenue expenditure; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENCH : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO. 328 /JODH/2013 (A.Y. 200 8 - 09 ) A CIT, CIRCLE - 1, VS. SHRI SURESH KUMAR AGARWAL, UDAIPUR. 196 , PATRAKAR COLONY , BUS STAND , DUNGARPUR. PAN NO. AB W PA 2013 J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SHRAWAN KUMAR GUPTA DEPARTMENT BY : SHRI N.A. JOSHI - D.R. DATE OF HEARING : 17 / 0 7 /201 4 . DATE OF PRONOUNCEMENT : 06 /0 8 /201 4 . O R D E R PER N.K. SAINI, A.M TH IS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 12 /03/2013 OF L D . CIT(A), UDAIPUR . THE FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN: - 1. RESTRICTING THE TRADING ADDITION MADE AFTER INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT OF RS. 6,36,205/ - TO RS. 2,17,029/ - IGNORING THE FACT THAT THE ASSESSEE HAS NOT PRODUCED ANY SUPPORTING EVIDENCE REGARDING THE EXPENSES DEBITED IN P & L ACCOUNT. 2 2. DELETING THE ADDITION OF RS. 10,78,633/ - MADE BY TREATING REVENUE EXPENDITURE AS CAPITAL EXPENDITURE IGNORING THE FACT THAT TH E ASSESSEE HAS NOT PRODUCED BILLS & VOUCHERS IN SUPPORT OF THE EXPENSES WHICH ARE CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE. THAT THE APPELLANT CRAVES TO ADD, AMEND, ALTER, DELETE OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2 FIRST ISSUE VIDE GROUND NO. 1 RELATES TO THE TRADING ADDITION 3. FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 06/10/2008 DECLARING AN INCOME OF RS. 12,77,320/ - WHICH WAS PROCESSED U/S. 143(1) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT IN SHORT) . LATER ON, THE CASE WAS SELECTED FOR SCRUTINY . THE ASSESSING OFFICER ASKED THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNTS, BILLS/VOUCHERS ETC. SINCE, THE ASSESSEE HAD NOT PRODUCED THE BILLS/VOUCHERS, THE ASSESSING OFFICER R E JECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT. THE ASSESSING OFFICER APPLIED THE NET PROFIT RATE OF 8% ON THE GROSS RECEIPTS AND WORK ED OUT THE PROFIT AT RS. 20,74, 1 27/ - AS AGAINST RS. 12,77,320/ - SHOWN BY THE ASSESSEE. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT THE ASSESSING OFFICER APPLIED FLA T RATE OF 8% AFTER ALLOWING DEPRECIATION AND INTEREST . IT WAS FURTHER STATED THAT THE 3 ASSESSING OFFICER HAD INCLUDED THE WORK IN PROGRESS IN THE TURNOVER AND DID NOT CONSIDER THE PAST HISTORY OF THE CASE AVAILABLE ON RECORD ITSELF . IT WAS STATED THAT THE PROFIT DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS BETTER THAN THE PROFIT DECLARED IN THE EARLIER YEAR AND THERE WAS NO CHANGE IN THE NATURE OF BUSINESS. IT WAS FURTHER STATED THAT THE TURNOVER OF THE ASSESSEE I NCREASED TO RS. 254 LAC IN THE YEAR UNDER CONSIDERATION FROM RS. 201 LAC IN THE EARLIER YEAR AND NET PROFIT ALSO INCREASED TO 5.65% FROM 5.62% . T HEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER , BY IGNORING THE PAST HISTORY , WAS ARBITRARY. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: - 1. CIT VS. SIMON CARVES LTD. (1975) 105 ITR 212 (SC) 2. INTERNATIONAL FOREST CO. VS. CIT (1975) 101 ITR 721 (J & K) 3. (2008) 116 TTJ (JP B') 552 . 5. THE LEARNED CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT THE GROSS RECEIPTS OF THE ASSESSEE AS PER ACCOUNT WERE AT RS. 2,59,26,595/ - AND THE RATE SHOULD HAVE BEEN APPLIED ON THIS TURNOVER ONLY . HE FURTHER OBSERVED THAT THE NET PROFIT OF 5.65% AFTER DEPRECIATION & INTEREST AND 11.60% BEFORE DEPRECIATION & INTEREST HAD BEEN DECLARED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION IN 4 COMPARISON TO THE NET PROFIT RATE OF 5.62% AFTER DEPRECIATION & INTEREST AND 10.23% BEFORE DEPRECIATION & INTEREST HAD BEEN DECLARED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR . HE FURTHER OBSERVED THAT THE NET PROFIT OF THE ASSESSEE INCREASED TO RS. 14,37,921/ - AS AGAINST RS. 11,36,678/ - IN THE IMMEDIATELY PRECEDING YEAR AND THER E WAS ALSO INCREASE IN THE GROSS RECEIPTS FROM RS. 201 LAC IN THE PRECEDING YEAR TO RS. 254 LAC IN THIS YEAR . THE LD. CIT(A) WAS OF THE VIEW THAT THE RATE OF 8% APPLIED BY THE ASSESSING OFFICER FOR ESTIMATION OF BUSINESS INCOME AFTER ALLOWING OF THE EXPEN SES WAS NOT JUSTIFIABLE BECAUSE THE SAID RATE WAS TO BE APPLIED WHERE THE TURNOVER WAS UPTO RS. 40 LAC. THE LD. CIT(A) ALSO OBSERVED THAT THERE WERE CERTAIN EXPENSES DEBITED IN THE P & L ACCOUNT FOR WHICH PROPER SUPPORTING VOUCHERS WERE NOT AVAILABLE AND POSSIBILITIES OF THE PERSONAL EXPENDITURE TO SOME EXTENT DEBITED IN THE ACCOUNTS OF THE ASSESSEE COULD NOT BE RULED OUT. THE LD. CIT(A) , BY CONSIDERING THE ABOVE STATED FACTS , DIRECTED THE ASSESSING OFFICER TO APPLY NET PROFIT RATE OF 6.5% AS AGAINST 8%. NOW THE DEPARTMENT IS IN APPEAL. 6 . LEARNED D.R. STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER DATED 20/12/2013 . 5 7 . IN HIS RIVAL SUBMISSIONS , LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW . 8 . WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE , IT APPEARS THAT THE ASSESSING OFFICER AFTER REJECTING THE BOOKS OF ACCOUNTS , APPLIED NET PROFIT RATE O F 8% WITHOUT ANY BASIS AND BY IGNOR ING THE PAST HISTORY OF THE ASSESSEE . A T THE SAME TIME , THERE WERE CERTAIN DEFECTS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND THE EXPENSES DEBITED IN THE P & L ACCOUNT WERE NOT SUPPORTED BY PROPER VOUCHERS. IN SUCH TYPE OF CASES, POSSIBILITY OF PERSONAL EXPENDITURE DEBITED IN THE P & L ACCOUNT CANNOT BE RULED OUT , PARTICULARLY WHEN PROPER SUPPORTING VOUCHERS WERE NOT AVAILABLE. IN THE INSTANT CASE, THE NET P ROFIT RATE OF 8% APPLIED BY THE ASSESSING OFFICER WAS HIGHLY EXCESSIVE PARTICULARLY BY CONSIDERING THE PAST HISTORY OF THE ASSESSEES CASE . IN OUR OPINION, LD. CIT(A) WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO APPLY THE NET PROFIT RATE OF 6.5% ON THE GROSS TURNOVER INSTEAD OF 8% . WE DO NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS GIVEN BY THE LD. CIT(A) ON THIS ISSUE. 6 9 . THE NEXT ISSUE VIDE GROUND NO. 2 RELATES TO THE DELETION OF ADDITION OF RS. 10,78, 6 33/ - MADE BY THE ASSESSING OFFICER BY TREATING THE REPAIRING & MAINTENANCE EXPENSES AS CAPITAL EXPENDITURE. 10 . FACTS RELATING TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSING OFFICER TREATED THE TRUCK TRACTOR REPAIRING EXPENSES OF RS. 2,69,784/ - AND VEHICLE/JCB/ DUMPER REPAIRING EXPENSES OF RS. 8,09,849/ - AS CAPITAL EXPENDITURE BECAUSE ASSESSEE COULD NOT PRODUCE THE BILLS/VOUCHERS IN SUPPORT OF TH ESE EXPENSES . 11 . BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: - I N THIS RESPECT WE HAVE TO SUBMIT THAT THE LEARNED ASSESSING OFFICER HAS ERRED AT LAW AND ON FACTS AFTER REJECTING THE BOOKS OF ACCOUNTS AND AFTER ESTIMATING THE NET PROFIT FOR TAX PURPOSE BY APPLYING NET PROFIT RATE TO TURNOVER IN CONSIDERING SEPARATELY ONE OF THE ACCOUNT RELATED TO EXPENDITURE APPEARING IN THE SAME BOOKS AND THEREBY ERRED IN MAKING SEPARATE ADDITION BY TREATING THE REVENUE EXPENDITURE AS CAPITAL EXPENDITURE. IN THIS RESPECT AT THE VERY OUTSIDE WE HAVE TO SUBMIT THAT THE OBSERV ATION OF THE ASSESSING OFFICER THAT THE EXPENDI TURE FOR REPAIR AND MAINTENANCE W ERE OF THE NATURE OF CAPITAL EXPENDITURE WITHOUT APPRECIATING THE FACTS THAT THE ASSESSE E OWNED HEAVY CONSTRUCTION MACHINERIES ONLY WHICH THE COSTLY PARTS ARE REQUIRED FOR REGU LAR RUNNING OF THE SAME. NONE OF THE PART HAS LIFE OVER ONE YEAR AND THE MACHINERIES REQUIRE SUCH SPARES AND PARTS REGULARLY FOR REGULAR USE OF MACHINERY. THE COST OF REPAIR AND MAINTENANCE CLAIMED IN THE ACCOUNTS WAS REASONABLE LOOKING TO THE VOLUME OF WO RK EXECUTED THROUGH SUCH MACHINES. THE 7 EXPENDITURES WERE THE REVENUE NATURE AND THERE WAS NO ELEMENT OF CAPITAL NATURE AT THE TIME OF EXPENDITURE INCURRED. HENCE THE INFERENCE DRAWN BY THE ASSESSING OFFICER IN THIS RESPECT IS NOT CORRECT. THERE WAS NO INCR EASE OR ADDITION IN THE VALUE OF THE ASSETS AT THE TIME OF INCURRING SUCH COST OF REPAIR AND MAINTENANCE. THE TREATMENT OF SUCH EXPENSES IN ACCOUNTS BY THE ASSESSEE IS CORRECT AND BASED ON CORRECT PRINCIPALS OF ACCOUNTING CONSIDERING THE REAL NATURE OF EXP ENDITURE. FURTHER THE ASSESSING OFFICER HAS WRONGLY INFERRED THAT EVEN THOUGH THE EXPENDITURE HAS BEEN TREATED AS CAPITAL NATURE NO DEPRECIATION IS ALLOWED ON SUCH EXPENDITURE BECAUSE THE INCOME HAS BEEN DETERMINED BY APPLYING NET PROFIT RATE AFTER ALLOWAN ING DEPRECIATION AND INTEREST. THE ASSESSING OFFICER HIMSELF BLOW HOT AND COLD AT THE SAME TIME BECAUSE HE HIMSELF HAS ERRED IN MAKING SEPARATE ADDITION ON THIS ACCOUNT IGNORING THE FACTS THAT HE HAS ALREADY DETERMINED THE INCOME FROM BUSINESS ON ESTIMATES BY APPLYING NET PROFIT RATE AND NO FURTHER DEDUCTION HAS BEEN ALLOWED AGAINST ANY EXPENSES AND THE SEPARATE CONSIDERATION OF ONE OF THE EXPENSES CLAIMED IN THE SAME ACCOUNT TANTAMOUNT TO DOUBLE TAXATION ON SAME INCOME WHICH IS AGAINST THE BASIC PRINCIPAL OF NATURAL JUSTICE. WHEN THE INCOME OF THE ASSESSEE WAS COMPUTED BY APPLYING BY A PARTICULAR RATE OF PROFIT AND WHEN NO DEDUCTION IS ALLOWED IN REGARDS TO THE PURCHASES OR OTHER EXPENSES, THERE WOULD BE NO NEED TO LOOK INTO THE OTHER PROVISIONS OF SECTION 30 TO 44 FOR DETERMINATION OF INCOME. HENCE THE SEPARATE CONSIDERATION OF EXPENSES UNDER THE HEAD REPAIR AND MAINTENANCE AND ADDITION MADE ON THIS ACCOUNT FOR DETERMINATION OF INCOME FROM BUSINESS OVER AND ABOVE THE INCOME ALREADY ESTIMATED BY APPLYING NET PROFIT RATE SUBJECT TO ALL EXPENSES IS ILLEGAL, CONTRARY TO THE FACTS AND AGAINST THE PRINCIPAL OF NATURAL JUSTICE. IN SUPPORT OF ABOVE PROPOSITION WE LIKE TO DRAW YOUR ATTENTION TOWARDS THE FOLLOWING JUDGMENTS: - I. CIT V/S BANWARILAL BANSHIDHAR (1 996) 229 ITR 229 (ALL) II. GOPAL SINGH R. RAJPUROHIT V/S ACIT (2005) 94 TTJ (AHD) 865 III. MOHD. ASLAM V/S ITO (2005) 94 TTJ (JD) 282 8 CONSIDERING THE RATIO OF ABOVE JUDGMENTS WHICH ARE TOTALLY APPLICABLE IN THE CASE OF ASSESSEE AS THE FACTS ARE SIMILAR AND IDENTICAL SO THE SEPARATE ADDITION MADE BY THE ASSESSING OFFICER BY DISALLOWING EXPENDITURE CLAIMED UNDER THE HEAD REPAIR AND MAINTENANCE FOR DETERMINATION OF INCOME OF BUSINESS OVER AND ABOVE THE INCOME DETERMINED BY APPLYING NET PROFIT RATE IS NOT JUSTIF IABLE AND THE ADDITION MADE ON THIS ACCOUNT DESERVES TO BE DELETED. THEREFORE WE REQUEST YOUR GOODSELF TO PLEASE DELETE THE ADDITION OF RS. RS.10,78,633/ - MADE BY THE AO ON THIS ACCOUNT IN THIS CASE, IN THE INTEREST OF EQUITY AND JUSTICE. 12. THE LEARNE D CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT THE ASSESSING OFFICER AFTER INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT HAD APPLIED NET PROFIT RATE FOR DETERMINATION OF INCOME FROM BUSINESS AND IN ADDITION TO THIS, HE HAD SEPARATELY CONSIDERED ONE OF THE EXPENSES CLAIMED IN P & L ACCOUNT OF THE SAME BUSINESS AND HELD THAT THE EXPENSES RELATED TO REPAIR & MAINTENANCE WERE CAPITAL EXPENDITURE AS AGAIN S T REVENUE EXPENDITURE . THE LD. CIT(A) WAS OF THE VIEW THAT THE EXPENSES WERE OF REVENUE IN NATURE AND SHOULD NOT BE TREATED AS CAPITAL IN NATURE. LD. CIT(A) ALSO OBSERVED THAT AFTER APPLYING THE NET PROFIT RATE TO TURNOVER FOR DETERMINATION OF INCOME OF BUSINESS NO FURTHER SEPARATE CONSIDERATION OF EXPENSES UNDER ANY HE A D OF EXPENSES CLAIMED FROM SECTIONS 30 TO 44 OF THE ACT IS CALLED FOR. HE, 9 ACCORDINGLY , DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. NOW THE DEPARTMENT IS IN APPEAL. 13 WE HAVE C ONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE PRESENT CASE , IT IS NOTICED THAT THE ASSESSING OFFICER CONSIDER ED THE EXPENSES INCURRED BY THE ASSESSEE ON REPAIRS & MAINTENANCE AS CAPITAL IN NATURE, BUT NOTHING WAS BROUGHT ON RECORD TO SUBSTANTIATE THAT ANY NEW ASSET CAME INTO EXISTENCE WHICH WAS HAVING ENDURING BENEFIT. THEREFORE, LD. CIT(A) RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. WE , DO NOT SE E ANY INFIRMITY IN THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. 14 IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISMISSED . ( ORDER PRONOUNCED IN THE COURT ON 06 TH AUGUST , 201 4) . SD/ - SD/ - ( HARI OM MARATHA ) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 06 TH AUGUST , 201 4 . VR/ - COPY TO: 10 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD. CIT 4. THE CIT(A) 5. THE D.R SR. PRIVATE SECRETARY , ITAT, JODHPUR .