The ITO, Ward-3(2)., Visakhapatnam V. Sri J Venkateswara Rao, Visakhapatnam

ITA 34/VIZ/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6986 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-03-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2003-2004
• Appeal Filed On: 15-02-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUBRATA SARKAR; B SASMALDR
• Assessee Lawyers: C V S MURTHY
• Keywords: Depreciation
• Section: 44AD; 144

Judgement Text

PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI BR BASKARAN, ACCOUNTANT MEMBER ITA NO.34/VIZAG/2007 ASSESSMENT YEAR: 2003-04 ITO WARD-3(2) VS. JASTI VENKATESWARA RAO, VISAKHAPATNAM CHEEPURUPALLI PAN NO:ADZPJ 3372 J (APPELLANT) (RESPONDENT) ITA NO:379/VIZAG/2008 ASSESSMENT YEAR: 2005-06 ACIT, CIRCLE-3(1) VS. JASTI VENKATESWARA RAO, VISAKHAPATNAM CHEEPURUPALLI PAN NO:ADZPJ 3372 J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SUBRATA SARKAR & B. SASMAL,DR RESPONDENT BY: SHRI C.V.S. MURTHY, CA ORDER PER SHRI B R BASKARAN, ACCOUNTANT MEMBER : THESE TWO APPEALS FILED AT THE INSTANCE OF THE REV ENUE ARE DIRECTED AGAINST THE ORDERS PASSED BY LD CIT (A), VISAKHAPAT NAM AND THEY RELATE TO THE ASSESSMENT YEARS 2003-04 & 2005-06. SINCE BOTH THE APPEALS WERE HEARD TOGETHER, WE FIND IT CONVENIENT TO DISPOSE TH EM OF BY THIS COMMON ORDER. 2. WE TAKE UP THE APPEAL RELATING TO THE ASSESSMENT YEAR 2003-04. THE ONLY ISSUE URGED IN THIS APPEAL IS WHETHER THE LD C IT (A) IS JUSTIFIED IN DELETING VARIOUS ADDITIONS MADE BY THE ASSESSING OF FICER AND INSTEAD ESTIMATING THE INCOME OF THE ASSESSEE AT 6% OF THE GROSS CONTRACT BASIS. PAGE 2 OF 5 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE HEREIN IS DERIVING INCOME FROM CIVIL CONTRACT WORKS , PLYING LORRIES, AGRICULTURAL ACTIVITIES AND INCOME FROM OTHER SOURC ES. HE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2003-04 ADMITTING AN INCOME OF RS.10,13,280/- BESIDES AGRICULTURAL INCOME OF RS.1, 50,000/-. HIS CASE WAS SELECTED FOR SCRUTINY AND THE AO ISSUED NOTICES SEV ERAL TIMES. HOWEVER, THERE WAS NO COMPLIANCE FROM THE ASSESSEE. HENCE TH E AO COMPLETED THE ASSESSMENT TO THE BEST OF HIS JUDGMENT U/S 144 OF T HE ACT BY MAKING ADDITIONS UNDER VARIOUS HEADS. THE TOTAL INCOME WA S DETERMINED AT RS.77,09,705/-. IN THE APPEAL PREFERRED BY THE ASSE SSEE THE LD CIT (A) CONFIRMED THE ACTION OF THE AO IN COMPLETING THE AS SESSMENT EX-PARTE U/S 144 OF THE ACT. HOWEVER, THE LD CIT (A) FELT THAT THE AO, INSTEAD OF MAKING ADDITIONS UNDER VARIOUS HEADS, SHOULD HAVE ESTIMATE D THE INCOME BY REJECTING THE BOOKS OF ACCOUNTS. ACCORDINGLY THE L D CIT (A) DIRECTED THE AO TO ESTIMATE THE INCOME AT 6% OF THE GROSS CONTRACT RECEIPTS, CLEAR OF ALL EXPENSES AND DEPRECIATION. THE LD CIT (A) ADOPTED T HE RATE OF 6% ON THE BASIS OF THE ASSESSMENT MADE FOR THE IMMEDIATELY PR ECEDING ASSESSMENT YEAR. AGGRIEVED BY THE ORDER OF THE LD CIT (A) THE REVENUE HAS FILED THIS APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND ALSO PERUSED THE RECORD. WE NOTICE THAT THE ASSESSEE HAS FILED THE TAX AUDIT REPORT PRESCRIBED U/S 44AD OF THE ACT ALONG WITH HIS RETURN OF INCOME. H ENCE IT IS EVIDENT THAT THE ASSESSEE IS MAINTAINING THE REGULAR BOOKS OF AC COUNTS. FROM THE ASSESSMENT ORDER, WE NOTICE THAT THE ASSESSEE HAS F AILED TO COOPERATE WITH THE AO, THOUGH SEVERAL OPPORTUNITIES WERE GIVEN TO HIM, WHICH LED THE AO TO COMPLETE THE ASSESSMENT EX-PARTE U/S 144 OF THE ACT. FROM THE SUBMISSIONS MADE BEFORE THE LD CIT (A), WE NOTICE T HAT THE ASSESSEE HAS CITED REASON OF AN ACCIDENT MET BY HIM, FOR NOT PRO DUCING THE BOOKS OF ACCOUNTS DURING THE COURSE OF THE ASSESSMENT PROCEE DING. NORMALLY BOOKS PAGE 3 OF 5 OF ACCOUNTS ARE REJECTED BY THE TAX AUTHORITIES ONL Y IF THEY WERE FOUND TO BE UNRELIABLE. IN THE INSTANT CASE, THE BOOKS OF ACC OUNTS WERE NEVER EXAMINED BY THE TAX AUTHORITIES. HENCE, WE ARE OF THE OPINION THAT THE LD CIT (A), WITHOUT RECORDING SUCH A FINDING, SHOULD N OT HAVE DIRECTED THE AO TO REJECT THE BOOKS OF ACCOUNTS. THE LD CIT (A) HA S ADOPTED THE RATE OF 6% ON THE BASIS OF ASSESSMENT ORDER PASSED FOR THE ASS ESSMENT YEAR 2002-03. HOWEVER, ACCORDING TO THE LD DR THAT THE ASSESSEE H AS FAILED TO PRODUCE THE BOOKS OF ACCOUNTS IN THAT YEAR ALSO, WHICH SUBM ISSION WAS DISPUTED BY THE LD AR. IT IS NOW WELL SETTLED PREPOSITION THAT THE PRINCIPLES OF RES- JUDICATA SHALL NOT APPLY TO THE INCOME TAX PROCEEDI NGS. IN THE YEAR UNDER CONSIDERATION, SINCE THE ASSESSEE HAS MAINTAINED TH E BOOKS OF ACCOUNTS, NOTHING PREVENTS HIM TO PRODUCE THE SAME BEFORE THE AO. AT THE SAME TIME, WE NOTICE THAT THE ADDITIONS MADE BY THE AO C OULD BE EXPLAINED BY THE ASSESSEE. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT AN OPPORTUNITY SHOULD BE GIVEN TO THE ASSESSEE TO PRODUCE THE BOOK S OF ACCOUNT BEFORE THE AO. ACCORDINGLY, WE REVERSE THE ORDER OF THE LD CI T (A) AS WELL AS THE ASSESSMENT ORDER AND RESTORE THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO COMPLETE THE ASSESSMENT DENOVO IN ACCO RDANCE WITH LAW, AFTER VERIFICATION OF THE BOOKS OF ACCOUNTS. THE ASSESSEE IS ACCORDINGLY DIRECTED TO PRODUCE THE BOOKS OF ACCOUNTS BEFORE THE AO. 5. WE NOW TAKE UP THE APPEAL RELATING TO THE ASSESS MENT YEAR 2005-06. IN THIS YEAR, THE REVENUE IS ASSAILING THE DECISION OF THE LD CIT (A) IN ESTIMATING THE INCOME AT 18% OF THE GROSS RECEIPTS SUBJECT TO THE ALLOWANCE OF THE DEPRECIATION. 6. IN THIS YEAR, THE ASSESSEE DID NOT MAINTAIN THE B OOKS OF ACCOUNT AND HENCE FILED RETURN OF INCOME BY ESTIMATING THE NET PROFIT AT 10% OF THE GROSS CONTRACT RECEIPTS AND THEREAFTER CLAIMED DEPR ECIATION. IN THIS YEAR ALSO THE ASSESSEE DID NOT COOPERATE WITH THE AO AND HENCE THE ASSESSMENT WAS COMPLETED EX-PARTE U/S 144 OF THE ACT. WHILE COMPLETING THE PAGE 4 OF 5 ASSESSMENT, THE AO DISALLOWED THE CLAIM OF DEPRECIA TION AMOUNT OF RS.27.29 LAKHS BY FOLLOWING THE PROVISIONS OF SECTI ON 44AD. IN THE APPEAL PREFERRED BY THE ASSESSEE THE LD CIT (A) NOTICED TH AT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR VIZ., ASSESSMENT YEAR 200 4-05, THE ASSESSEE HAD DISCLOSED A PROFIT AT THE RATE OF 18.24% BEFOR E ALLOWANCE OF DEPRECIATION CLAIM. ACCORDINGLY THE LD CIT (A) DIR ECTED THE AO TO ESTIMATE THE INCOME AT 18% OF THE TOTAL CONTRACT RECEIPTS AN D THEREAFTER ALLOW DEDUCTION OF DEPRECIATION AMOUNT OF RS.27.29 LAKHS. AGGRIEVED BY THE ORDER OF THE LD CIT (A) THE REVENUE IS IN APPEAL BE FORE US. 7. WE HAVE HEARD THE PARTIES AND ALSO PERUSED THE R ECORD. IT IS AN ADMITTED FACT THAT THE ASSESSEE DID NOT MAINTAIN TH E BOOKS OF ACCOUNTS IN THIS YEAR AND THE GROSS CONTRACT RECEIPTS HAVE EXCE EDED RS.40.00 LAKHS. IT IS PERTINENT TO NOTE THAT SEC.44 AD OF THE ACT APPLIES ONLY IN THOSE CASES WHERE THE GROSS CONTRACT RECEIPTS ARE LESS THAN RS. 40.00 LAKHS. HOWEVER, THE AO HAS FOLLOWED THE PROVISIONS OF SECTION 44AD OF THE ACT FOR DISALLOWING THE DEPRECIATION CLAIM. BY CORRECTLY A PPRECIATING THE LEGAL POSITION, THE CIT (A) HAS HELD THAT THE AO IS NOT C ORRECT IN INVOKING THE PROVISIONS OF SEC.44AD IN THE INSTANT CASE. FURTHE R, THE LD CIT (A) HAS REFERRED TO THE CIRCULAR NO.29-D(XIX-14) DATED 31-08 -1965 ISSUED BY THE CBDT TO OBSERVE THAT THE DEPRECIATION IS A STATUTOR Y ALLOWANCE. FURTHER IN THIS CONNECTION, THE LD CIT (A) HAS ALSO REFERRED T O THE DECISION OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. BISHAMBHAR DAYAL & CO. REPORTED IN 218 ITR 118 AND THE HONBLE RAJASTHAN H IGH COURT IN THE CASE OF CIT VS. JAIN CONSTRUCTION CO. & ORS. REPORTED IN 245 ITR 527. 8. THUS WE NOTICE THAT THE LD CIT(A) HAS FELT T HAT THE DEPRECIATION, BEING A STATUTORY ALLOWANCE, SHOULD BE ALLOWED SEPARATELY . ACCORDINGLY, THE LD CIT (A) HAS ENHANCED THE RATE OF PROFIT TO 18% OF T HE GROSS CONTRACT RECEIPTS BEFORE ALLOWING THE DEDUCTION FOR DEPRECIA TION. THOUGH THE REVENUE CONTENDS THAT THE LD CIT(A) SHOULD NOT HAVE ALLOWED THE PAGE 5 OF 5 DEPRECIATION CLAIM, THE BASIC POINT TO BE NOTED HER E IS THAT THE AO WAS LEGALLY INCORRECT IN INVOKING THE PROVISIONS OF SEC TION 44AD IN ORDER TO DENY THE DEPRECIATION TO THE ASSESSEE. HENCE THE LD CIT (A) THOUGHT IT REASONABLE TO INCREASE THE RATE OF PROFIT AND THEN ALLOW DEPRECIATION. IN VIEW OF THE FOREGOING, WE ARE OF THE VIEW THAT THE LD CIT (A) HAS TAKEN A CONSCIOUS DECISION AFTER ANALYZING THE FACTS OF THE CASE AND JUDICIAL PRONOUNCEMENTS AND ACCORDINGLY WE FIND NO REASON TO INTERFERE WITH HIS DECISION. 9. IN THE RESULT THE APPEAL OF THE REVENUE FOR 2003- 04 IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL REL ATING TO THE ASSESSMENT YEAR 2005-06 IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 29 TH MARCH, 2010. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM, DATE:29 TH MARCH, 2010. COPY TO 1 THE ITO WARD - 3(2), VISAKHAPATNAM 2 SHRI JASTI VENKATESWARA RAO, H.NO. 4-280 A, ANJAN EYAPURTAM, CHEEPURUPALLI, VIZIANAGARAM DISTT. 3 THE ACIT,CIRCLE-3(1), VISAKHAPATNAM 4 THE CIT(A) - I , V ISAKHAPATNAM 5. THE CIT,VISAKHAPATNAM 6 THE DR, ITAT, VISAKHAPATNAM. 7 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM