M/s Satyanarayan Plastic Industries, Secunderabad V. DCIT, Hyderabad

ITA 347/HYD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3414 (ITAT-HYDERABAD)
• Duration Of Justice: 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2002-2003
• Appeal Filed On: 05-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Rejection of books of accounts; Depreciation; Onus to prove; Set aside
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER (SMC) ITA NO.347/H/2010 A.Y. 2002-03 M/S SATYA NARAYANA PLASTIC INDUSTRIES, HYDERABAD (AAGFS4614 N) VS DY.CIT, CIRCLE, I, HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI K.C. DEVDAS RESPONDENT BY: SHRI K.V.N. CHARYA, D.R. O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A)-I, HYDERABAD DATED 10.8.2007 AND PERTAINS TO THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS: 1. THE ORDER PASSED BY CIT (A) IS UNSUSTAINABLE ON FACTS AND IN LAW. 2. THE CIT(A) ERRED IN REJECTING THE BOOKS OF ACCOU NTS OF THE ASSESSEE IN A MECHANICAL MANNER AND IN ESTIMATING NET PROFIT AT 3 .5% OF THE SALES TURNOVER. 3. THE CIT(A) HAVING ACCEPTED THE OPENING STOCK, PU RCHASES, TURNOVER, CLOSING STOCK AND ALL EXPENSES WHICH WERE FULLY VOUCHED OF THE ASSESSEES BUSINESS AS CORRECT ERRED IN ESTIMATING THE NET PROFIT AT 3% OF THE SALES TURNOVER. 4. THE CIT(A) IN ESTIMATING THE NET PROFIT ON JOB W ORK AT 22% OF THE JOB WORKS RECEIPTS IS WHOLLY UNSUSTAINABLE IN LAW. 5. WITHOUT PREJUDICE TO ANY OF THE AFORESAID GROUND S THE CIT(A) OUGHT TO HAVE ALLOWED THE DEDUCTION FOR DEPRECIATION OF RS.6,84,0 55/- SEPARATELY AS IT IS NOT AN EXPENDITURE BUT AN ALLOWANCE WHILE ESTIMATING TH E EXPENDITURE. 2 2 6. THE CIT(A) FAILED TO NOTE THAT THERE WAS COMPLET E INTER LACING, INTER DEPENDENCE, SUPERINTENDENCE AND COMMON MANAGEMENT F OR THE ENTIRE PLASTIC GOODS BUSINESS AND JOB WORK RECEIPTS AND THEREFORE ERRED IN TREATING THEM AS SEPARATE BUSINESS FOR THE PURPOSE OF ESTIMATING THE INCOME. 7. THE CIT(A) IN REJECTING THE BOOKS OF ACCOUNTS WH ILE ACCEPTING THE FIGURES SATED THEREIN WITHOUT FINDING ANY BLEMISHES IN THEI R MAINTENANCE IS WHOLLY UNSUSTAINABLE IN LAW AND THEREFORE THE BOOK RESULTS OF THE ASSESSEE OUGHT TO HAVE BEEN ACCEPTED. 3. IN THIS CASE, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF PLASTIC GOODS. ORIGINALLY, TH E ASSESSMENT WAS COMPLETED U/S 144 OF THE IT ACT BY ESTIMATING THE INCOME AT 8% OF THE TURNOVER. THIS ASSESSMENT WAS CHALLENGED BY THE ASSESSEE BEF ORE THE CIT(A). THE CIT(A) SET ASIDE THE ASSESSMENT WITH THE DIR ECTION TO ASSESSING OFFICER TO COMPUTE THE COME AFRESH AFTER GATHERIN G CERTAIN INFORMATION. ON SETTING ASIDE, THE ASSESSMENT WAS COMPLET ED BY THE ASSESSING OFFICER REJECTING THE BOOKS OF ACCOUNT AND MAKING CERTAIN ADDITIONS ON THE REASON THAT THE EXPENDITURE CLAIMED B Y THE ASSESSEE WAS NOT SUPPORTED BY THE EXTERNAL BILLS, VOUCHERS AND R ECEIPTS AND SUPPORTED ONLY BY SELF MADE VOUCHERS. ON APPEAL, CIT( A) CONFIRMED THE ESTIMATION OF PROFIT AT 3.5% FROM PLASTIC BUSINESS (I.E. ON SALES TURNOVER) AND 20% ON JOB WORK CHARGES. THE ASSESSEE ALSO HAVING GRIEVANCE AGAINST DISALLOWANCE OF DEPRECIATION AT 6,84,0 55/-. 4. THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMI TTED THAT THE REJECTION OF BOOKS OF ACCOUNT BY LOWER AUTHORI TIES ONLY ON THE REASON THAT THE EXPENDITURE SUPPORTED BY SELF MADE VOU CHERS. HE SUBMITTED THAT THE ASSESSING OFFICER NEITHER DOUBTED THE OPENING STOCK 3 3 NOR PURCHASES, SALES, CLOSING STOCK FIGURES. HE SUBMITTED THA T MOST EXPENSES ARE IN ROUTINE IN NATURE AND THERE IS NO CHANCE OF INFLATING OF ANY EXPENSES. HE DREW OUR ATTENTION TO THE VARIOUS EXP ENSES NOTED IN THE PROFIT AND LOSS ACCOUNT AND HE SUBMITTED THAT AT A NY STRETCH OF IMAGINATION THE EXPENSES LIKE TRAVELLING ALLOWANCE, WA GES IN THE TRADING ACCOUNT OR ANY OTHER EXPENSES IN THE PROFIT AND LOSS ACCOUN T WOULD BE SAID THAT THEY WERE INFLATED ONE. FURTHER, HE SUBMIT TED THAT IN THE EARLIER ASSESSMENT YEARS 2000-01, 2001-02 OR IN SUBSEQUENT ASSESSMENT YEARS 2003-04 OR 2004-05 THERE IS NO SUSTAINING OF ANY ADDITION. FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 THE ASSESSING OFFICER ESTIMATED THE INCOME. HOWEVER, THE SAME W AS DELETED BY THE CIT(A) AGAINST WHICH THE DEPARTMENT HAS NOT FI LED ANY APPEAL. BEING SO, FOR THIS ASSESSMENT YEAR, THE ADDITION CANNOT BE MADE ON ESTIMATED BASIS. FURTHER, HE SUBMITTED THAT THE CASE LA W RELIED BY THE CIT(A) FOR CONFIRMING THE ADDITION IN THE CASE OF M/S S ATYANARAYANA INDUSTRIES OF HIS OWN ORDER. IN THE CASE OF M/S SATYA NARAYANA PLASTIC INDUSTRIES, IT IS A TRADING CONCERN AND THE RATIO LAID DOWN BY THAT DECISION CANNOT BE APPLIED TO THE PRESENT ASSESSEES CASE SINCE PRESENT ASSESSEE IS A MANUFACTURING CONCERN. FURTHER, HE SUBMITTED THAT THE ASSESSING OFFICER HAVING NOT POINTED OUT ANY SPECIFIC DISCREP ANCIES IN THE BOOKS OF ACCOUNT, THE ADDITIONS CANNOT BE MADE. 4 4 5. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTA TIVE SUBMITTED THAT IN THE PRESENT CASE THE ASSESSEE NOT PRODUCED BOOKS OF ACCOUNTS AND THERE IS NO EXTERNAL EVIDENCE SUPPORTING TH E INCURRING OF EXPENSES HENCE HE SUBMITTED THAT CERTAIN ESTIMATION OF IN COME TO BE MADE TO ASCERTAIN THE INCOME OF THE ASSESSEE. HE RELIED O N THE ORDER OF THE CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THIS CASE, ADMITTEDLY THAT THE EXPENDITURE BOOKED BY THE ASSESSEE IS COMPARATIVELY HIGH AND MAJORITY OF EXPENSES ARE BOOKED THROUGH SELF MADE VOUCHERS. THERE IS A DOUB T REGARDING THE AUTHENTICITY, GENUINENESS AND CORRECTNESS OF EXPENDITURE B OOKED THROUGH THE SELF MADE VOUCHERS. HENCE BOOKS OF ACCOUNTS AR E REJECTED AND INCOME WAS ESTIMATED. THE CIT(A) SUSTAINED THE ADD ITIONS AT 3.5 % OF THE SALES TURNOVER AND 20% NET PROFIT ON JOB WORK. IN OUR OPINION, REJECTION OF BOOKS OF ACCOUNTS IS JUSTIFIED BECAUSE THE ASSESSE E FAILED TO PRODUCE THE REQUISITE VOUCHERS/BILLS AND RECEIPTS TO SUPP ORT THE INCURRING OF EXPENDITURE. THE BURDEN OF PROOF CASTED UPON THE ASSESSEE IS NOT DISCHARGED. THE BURDEN OF PROOF IN THE FIRST INSTANCE IS ALWAYS ON THE ASSESSEE TO ESTABLISH THAT BILLS AND VOUCHERS ASKED FOR MAINT AINED BY THE ASSESSEE. SINCE THE ASSESSEE NOT PRODUCED THE REQUISITE E VIDENCE TO SUPPORT THE INCURRING EXPENDITURE, THE ASSESSING OFFICER I S ENTITLED TO DISBELIEVE THE EXPENDITURE INCURRED BY THE ASSESSEE AND ESTIMATE THE 5 5 SAME. HOWEVER, THERE SHOULD BE CERTAIN BASIS FOR ESTIMA TION OF INCOME. THE ASSESSING OFFICER MUST NOT ACT DISHONESTLY OR VINDICTIVEL Y OR CAPRICIOUSLY BECAUSE HE MUST EXERCISE BEST JUDGEMENT IN TH E MATTER. HE MUST MAKE WHAT HE HONESTLY BELIEVED TO BE FAIR ESTIM ATION OF THE PROPER FIGURE OF ASSESSMENT AND FOR THIS PURPOSE HE MUST BE ABLE TO TAKE INTO CONSIDERATION ALL RELEVANT FACTS OF THE ASSESSEE S CASE AND PREVIOUS RETURNS IF ANY AND ALL OTHER MATERIALS HE THI NKS WILL ASSIST HIM IN ARRIVING AT FAIR AND PROPER ESTIMATE AND THOUGH THER E MUST NECESSARILY BE GUESS WORK IN THE MATTER IT MUST BE HONEST GUESS WORK . IN VIEW OF THIS MATTER, IN OUR OPINION, PAST TRACK RECORDS OF THE ASSESSEE IS THE BEST YARDSTICK TO DETERMINE THE INCOME OF THE ASSESSEE BECAUSE TH E ASSESSEE CARRIED ON BUSINESS ON MORE OR LESS SIMILAR CONDITIONS I N THE EARLIER ASSESSMENT YEARS ALSO. THE PAST HISTORY OF THE CASE BE TH E BEST YARDSTICK IN THE PRESENT CASE TO DETERMINE THE INCOME OF THE ASSESSEE. 7. IN VIEW OF THIS, WE DIRECT THE ASSESSING OFFICER TO CONSIDER THE AVERAGE GROSS PROFIT OF IMMEDIATELY PRECEDING LAST YEARS 3 YEARS IN RESPECT OF SALES AND JOB WORKS AND THEREAFTER GIVE DEDUC TION TOWARDS THE EXPENDITURE CLAIMED BY THE PROFIT AND LOSS ACCOUNT EXCEPT INSURANCE, INTEREST TO OTHERS AND DEPRECIATION. IN CASE OF INSURANCE , IF IT IS PERSONAL INSURANCE SAME TO BE DISALLOWED. IN CASE OF INTEREST TO OTHERS THE SAME TO BE DISALLOWED AT 10% ON ACCOUNT OF PERSONAL IN NATUR E ON ESTIMATED BASIS. IN CASE OF DEPRECIATION, THE ASSESSING OFFICER IS DI RECTED TO ALLOW 6 6 THE SAME AS PER INCOME TAX ACT. FURTHER, IF THE SALES INC LUDES SECOND SALE OF PLASTIC MOUNDED ARTICLES, THE GP ON THIS TO BE TAKEN ON ACTUAL BASIS AFTER VERIFYING THE CORRESPONDING PURCHASE BILLS. FURTHER, WE MAKE IT CLEAR THAT THERE IS NO CHANGE IN THE COMPUTATION OF INCOME FROM HOUSE PROPERTY, DCM RENT AND AUTO RENT AND THESE INCOMES TO BE ASSESSED SEPARATELY AS EARLIER. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 9 TH APRIL, 2010 SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER (SMC) DATED THE 9 TH APRIL, 2010 COPY FORWARDED TO: 1. M/S SEKHAR & COMPANY, CHARTERED ACCOUNTANTS, 133/4, RP ROAD, SECUNDERABAD 2. DY.CIT, CIRCLE I, HYDERABAD 3. CIT(A)-I HYDERABAD. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD.