Perfect Security Services, Ahmedabad V. The ACIT., Circle-2, Ahmedabad

ITA 3682/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5989 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 07-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 13-09-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Keywords: Business income; Depreciation; Bad and doubtful debts; Set aside
• Section: 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A.N. PAHUJA, AM) ITA NO.3682/AHD/2007 A. Y.: 2003-04 PERFECT SECURITY SERVICES, PROP. SHYOURAJSINGH B. CHAUHAN, 240, SECOND FLOOR, SARVODAYA COMMERCIAL CENTRE, SALAPOSE ROAD, NR. GPO, AHMEDABAD PA NO. AARPC 8119 P VS THE A. C. I. C., CIRCLE-2, AHMEDABAD (APPELLANT) (RESPONDENT) APPELLANT BY SHRI SAKAR SHARMA, AR RESPONDENT BY SHRI K.M. MAHESH, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-VI, AHMEDABAD DATED 20-06-2006 FOR ASSESSMENT YEAR 2003-04. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. 3. ON GROUNDS NO.1 AND 2 OF THE APPEAL, THE ASSESSE E CHALLENGED REJECTION OF BOOK RESULTS AND COMPUTATION OF INCOME BY APPLYING PROFIT RATE OF 7%. 4. BRIEFLY, THE FACTS OF THE CASE ON THESE ISSUES A RE THAT THE ASSESSEE IS INDIVIDUAL ENGAGED IN THE BUSINESS OF PROVIDING SECURITY PERSONNEL TO VARIOUS ORGANIZATIONS. THE ASSESSEE FILED HIS RETUR N OF INCOME FOR ASSESSMENT YEAR UNDER APPEAL DISCLOSING TOTAL INCOM E OF RS.20,68,790/-. RETURN WAS ACCOMPANIED BY AUDITED REPORT. IN THE CA SE OF THE ASSESSEE ITA NO.3682/AHD/2007 PERFECT SECURITY SERVICES VS ACIT, CIR-2, AHMEDABAD 2 SURVEY WAS CONDUCTED U/S 133 A OF THE IT ACT ON 24- 01-2002 IN WHICH IT WAS FOUND THAT THE ASSESSEE WAS SUPPRESSING THE PRO FIT BY CLAIMING EXCESSIVE EXPENDITURE. IT WAS ALSO ADMITTED THAT TH E ASSESSEE FILED PETITION BEFORE SETTLEMENT COMMISSION FOR ASSESSMEN T YEARS 1999-2000 TO 2001-02 WHICH WAS ADMITTED. FOR THE ASSESSMENT Y EAR 2002-03 ALSO THE AO DETECTED CERTAIN DEFECTS IN THE BOOKS OF ACC OUNT. ACCORDINGLY, BOOK RESULTS WERE REJECTED AND BUSINESS INCOME WAS ESTIMATED @10% OF THE GROSS RECEIPTS. THE ORDER OF THE AO FOR ASSESSM ENT YEAR 2002-03 WAS UPHELD BY THE LEARNED CIT(A). THE AO EXAMINED THE B OOKS OF ACCOUNT FOR ASSESSMENT YEAR UNDER APPEAL AND NOTED THAT ASSESSE E HAS DECLARED NET PROFIT RATE OF 4.08%. ON EXAMINATION OF THE BONUS R EGISTER IT WAS OBSERVED THAT IT WAS PREPARED BY A SINGLE PERSON IN THE SIMILAR HANDWRITING. RESIDENTIAL ADDRESS OF THE PERSON IS N OT SHOWN. IT WAS, THEREFORE, NOTED THAT PROPER ENTRIES WERE NOT RECOR DED IN THE BONUS REGISTER. SIMILARLY, IT WAS NOTED THAT THE ASSESSEE HAS WRITTEN OFF AMOUNT AMOUNTING TO RS.10,12, 001/- UNDER THE HEAD SUNDRY DEBTORS IN RESPECT OF M/S. SUNANDA INDUSTRIES, M/S. CORE HEALTH CARE L TD. AND RITU SHIPPING. THE AO NOTED THAT THE ASSESSEE HAS CONTIN UED BUSINESS WITH M/S. SUNANDA INDUSTRIES AND M/S. CORE HEALTH CARE L TD. AND HAS CONTINUED TO PROVIDE SECURITY PERSONNEL TO THEM. TH EREFORE, BOOKS OF ACCOUNT OF THE ASSESSEE DO NOT SHOW CORRECT STATE O F FACTS. BOOK RESULTS WERE ACCORDINGLY REJECTED BY CONSIDERING PAST HISTO RY OF THE ASSESSEE AND THE ABOVE FACTS. THE AO APPLIED 10% PROFIT RATE AGA INST THE TOTAL RECEIPT AND COMPUTED BUSINESS INCOME AT RS.34,96,919/-. THE INCOME WAS ESTIMATED AFTER CONSIDERING THE EXPENDITURE AND DEP RECIATION ADMISSIBLE AS PER THE ACT. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE BOOK RESULTS. TH E ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNT ON WHICH NO SPECIFIC DEFECT HAS BEEN POINTED OUT. THE ASSESSEE PREFERRED PETITION BEFORE THE SET TLEMENT COMMISSION FOR EARLIER YEARS WHICH WOULD NOT HAVE ANY BEARING IN THE SUBSEQUENT ASSESSMENT YEAR. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS OF THE ITA NO.3682/AHD/2007 PERFECT SECURITY SERVICES VS ACIT, CIR-2, AHMEDABAD 3 ASSESSEE AND MATERIAL ON RECORD CONFIRMED REJECTION OF BOOK RESULTS AND ON THE BASIS OF THE NET PROFIT RATE APPLIED BY THE SETTLEMENT COMMISSION AT 7% AGAINST THE TOTAL RECEIPTS DIRECTED THE AO TO COMPUTE BUSINESS INCOME BY APPLYING NET PROFIT RATE OF 7% OF THE TOT AL GROSS RECEIPTS AFTER CONSIDERING THE CLAIM OF THE ASSESSEE REGARDING EXP ENDITURE AND DEPRECIATION ADMISSIBLE UNDER THE LAW. ACCORDINGLY, NO DEPRECIATION WAS ALLOWED AND BAD DEBTS CLAIM OF THE ASSESSEE WAS ALS O DISALLOWED AND DIRECTED TO MAKE SEPARATE ADDITION OF RS.9,91,001/- ON ACCOUNT OF BAD DEBS BECAUSE THE ASSESSEE FAILED TO PROVE THAT THES E DEBTS HAVE BECOME BAD. THE LEARNED CIT(A) CONSIDERED THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISES AND ENG INEERS PVT. LTD. 207 CTR 720. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T THE AO FOUND DEFECTS IN THE BONUS REGISTER ONLY WHICH WAS CONSOL IDATED REGISTER FOR VARIOUS SECURITIES PROVIDED TO DIFFERENT ORGANIZATI ONS. THE ADDITION IS MERELY MADE ON THE BASIS OF FACTS GATHERED IN THE E ARLIER ASSESSMENT YEARS IN WHICH THE ASSESSEE PREFERRED PETITION BEFO RE THE SETTLEMENT COMMISSION. HE HAS SUBMITTED THAT NO SPECIFIC DEFEC T HAS BEEN POINTED OUT IN THE MAINTENANCE OF THE BOOKS OF ACCOUNT, THE REFORE, ON THE BASIS OF LAST YEARS FINDINGS, BOOK RESULTS SHOULD NOT HAVE BEEN REJECTED. ON THE OTHER HAND, THE LEARNED DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE LEARNED CIT(A) CONSIDERING T HE DEFECTS IN THE BONUS REGISTER AND THE DETAILS OF THE BAD DEBTS RIG HTLY CONCLUDED THE ISSUE AGAINST THE ASSESSEE FOR REJECTION OF THE BOO K RESULTS. THE LEARNED CIT(A) WAS JUSTIFIED IN APPLYING 7% OF THE PROFIT R ATE ON THE BASIS OF THE ORDER OF THE SETTLEMENT COMMISSION. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MATERIAL AVAILABLE ON RECORD. IT IS ADMITTED FACT THAT SURVE Y WAS CONDUCTED IN THE ITA NO.3682/AHD/2007 PERFECT SECURITY SERVICES VS ACIT, CIR-2, AHMEDABAD 4 PRECEDING ASSESSMENT YEAR. NO SURVEY WAS CONDUCTED IN THE ASSESSMENT YEAR UNDER APPEAL. THEREFORE, THE DEFECTS FOUND DUR ING THE COURSE OF SURVEY AND STATEMENT RECORDED IN EARLIER YEARS CANN OT BE THE BASIS FOR REJECTION OF THE BOOK RESULTS OF THE ASSESSEE IN TH E ASSESSMENT YEAR UNDER APPEAL. THE ASSESSEE MAINTAINED PROPER BOOKS OF ACCOUNT WHICH WERE ALSO AUDITED AND THE ASSESSEE PRODUCED ALL THE DETAILS AND LEDGER OF VARIOUS PARITIES INCLUDING BONUS REGISTER AND DETAI LS OF THE BAD DEBTS. THE LEARNED COUNSEL FOR THE ASSESSEE EXPLAINED THAT BONUS REGISTER WAS CONSOLIDATED FOR SEVERAL SECURITY PROVIDED TO DIFFE RENT ORGANIZATIONS IN WHICH ALSO NO SPECIFIC DEFECT HAS BEEN POINTED OUT BY THE AO. CONSIDERING THE HISTORY OF THE ASSESSEE AS NOTED BY THE AO AT PAGE 4 OF THE ASSESSMENT ORDER IT IS CLEAR THAT THE ASSESSEE HAS MORE OR LESS SHOWN BETTER RESULTS IN THE BOOKS OF ACCOUNT AS COMPARED TO THE PRECEDING ASSESSMENT YEARS 2000-01 AND 2001-02. SINCE THE BOO K RESULTS CANNOT BE REJECTED ON THE BASIS OF THE FINDINGS GIVEN IN T HE EARLIER YEARS, THEREFORE, THE AO SHOULD HAVE APPLIED MIND INDEPEND ENTLY IN ORDER TO MAKE OUT A CASE OF REJECTION OF BOOK RESULTS IN THE ASSESSMENT YEAR UNDER APPEAL. THE DEFECTS NOTED IN THE BONUS REGIST ER REGARDING SAME PAN USED BY SAME PERSON FOR MAKING THE ENTRIES ARE INSIGNIFICANT OBSERVATIONS WHICH WOULD NOT MAKE OUT A CASE OF REJ ECTION OF WHOLE OF THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO HAS NO T POINTED OUT AS TO WHICH BONUS HAS BEEN CLAIMED WITHOUT ANY JUSTIFICAT ION. THE AO HAS ALSO NOT MADE OUT ANY CASE AS TO WHICH OF THE BONUS PAYM ENT WAS NOT CONNECTED WITH THE BUSINESS ACTIVITIES OF THE ASSES SEE. THE AO HAS MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE FURNISHED XEROX COPY OF THE BONUS PAYMENT REGISTER OF VARIOUS PARTI ES FOR MAKING CLAIM FOR BONUS EXPENDITURE. THE AO INSTEAD OF POINTING O UT ANY SPECIFIC DEFECT IN THE PAYMENTS REJECTED THE WHOLE OF THE BOOK RESU LTS OF THE ASSESSEE. CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCES AND T HE FACT THAT NO SPECIFIC DEFECT HAS BEEN POINTED OUT IN THE BOOKS O F ACCOUNT OF THE ASSESSEE, WE DO NOT FIND IT TO BE A FIT CASE FOR RE JECTION OF THE BOOK RESULTS ITA NO.3682/AHD/2007 PERFECT SECURITY SERVICES VS ACIT, CIR-2, AHMEDABAD 5 MERELY ON THE BASIS OF FACTS FOUND DURING THE COURS E OF SURVEY IN THE PREVIOUS YEARS. AS REGARDS BAD DEBTS, THE AO COULD HAVE DISALLOWED CLAIM OF THE ASSESSEE SEPARATELY BUT SUCH CANNOT BE THE R EASON FOR REJECTION OF THE BOOK RESULTS AGAINST THE ASSESSEE. SIMILARLY, I F ANY BOGUS PAYMENT WOULD HAVE BEEN FOUND IT WOULD HAVE BEEN DISALLOWED SEPARATELY, BUT THE AO HAS NOT IDENTIFIED WHICH OF THE BONUS PAYMENTS W ERE UNJUSTIFIED OR NOT CONNECTED WITH THE BUSINESS ACTIVITIES OF THE A SSESSEE. WE ACCORDINGLY, HOLD THAT THE AUTHORITIES BELOW WERE N OT JUSTIFIED IN REJECTING THE BOOK RESULTS OF THE ASSESSEE AND APPLYING HIGHE R PROFIT RATE IN THE MATTER. WE ACCORDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE AO TO ACCEPT THE BOOK RESULTS DECLARED B Y THE ASSESSEE. AS A RESULT, GROUNDS NO.1 AND 2 OF THE APPEAL OF THE ASS ESSEE ARE ALLOWED. 7. ON GROUND NO.3 OF THE APPEAL, THE ASSESSEE CHALL ENGED THE ORDER OF THE LEARNED CIT(A) IN NOT GRANTING DEPRECIATION TO THE ASSESSEE BECAUSE OF REJECTION OF THE BOOK RESULTS AND APPLICATION OF HI GHER PROFIT RATE IN THE MATER. SEPARATE DEPRECIATION WAS NOT ALLOWED. THE L EARNED COUNSEL FOR HE ASSESSEE STATED THAT IF THE BOOK RESULTS OF THE ASSESSEE ARE ACCEPTED, THERE IS NO NEED OF GRANT OF DEPRECIATION SEPARATEL Y. CONSIDERING THE FINDINGS ON GROUNDS NO.1 AND 2 ABOVE, THIS GROUND H AS BECOME INFRUCTUOUS AND ACADEMIC. SINCE WE HAVE DIRECTED TH E AO TO ACCEPT THE BOOK RESULTS OF THE ASSESSEE, THEREFORE, THERE IS N O NEED OF ADJUDICATING UPON THIS GROUND BECAUSE DEPRECIATION WOULD HAVE BE EN TAKEN INTO CONSIDERATION WHILE PREPARING THE PROFIT & LOSS ACC OUNT AS PER BOOKS OF ACCOUNT. AS A RESULT, THIS GROUND OF APPEAL OF THE ASSESSEE IS DISPOSED OF IN TERMS OF THE FINDINGS GIVEN ON GROUNDS NO.1 AND 2 ABOVE. 8. ON GROUND NO.4 OF THE APPEAL, THE ASSESSEE CHALL ENGED THE ORDER OF THE LEARNED CIT(A) IN ENHANCING THE ASSESSMENT BY D ISALLOWING BAD DEBTS AMOUNTING TO RS.9,91,001/-. THE AO DID NOT DISALLOW BAD DEBTS SEPARATELY BECAUSE PROFIT RATE OF 10% WAS APPLIED. THE AO WAS OF THE ITA NO.3682/AHD/2007 PERFECT SECURITY SERVICES VS ACIT, CIR-2, AHMEDABAD 6 VIEW THAT SINCE THERE IS A BUSINESS RELATION CONTIN UED WITH M/S. SUNANDA INDUSTRIES AND M/S. CORE HEALTH CARE LTD., THEREFOR E, BAD DEBTS CANNOT BE ALLOWED SEPARATELY. THE AO HOWEVER, DID NOT MAKE SEPARATE ADDITION. THE LEARNED CIT(A) CONSIDERING THE ABOVE ISSUE CONF IRMED THE FINDINGS OF THE AO AND BY APPLYING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISES & ENGINEERS PVT. LTD. (SUPRA) DIRECTED THE AO TO MAKE SEPARATE ADDITION ON ACCOUNT OF REJECTIO N OF CLAIM OF THE ASSESSEE FOR BAD DEBTS. 9. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT NOW THE AO HAS TO CONSIDER THE ISSUE BY THE RECENT JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. VS CIT DATED 09- 02-2010 IN CIVIL APPEAL NO.5294 REPORTED IN 323 ITR 397. THE LEARNED COUNSE L FOR THE ASSESSEE FURTHER SUBMITTED THAT THE SETTLEMENT COMMISSION H AS TAKEN INTO CONSIDERATION THE ISSUE OF BAD DEBTS WHILE EXAMININ G THE CASE OF THE ASSESSEE FOR HE PURPOSE OF APPLYING 7% NET PROFIT I N THE PRECEDING ASSESSMENT YEARS. ON THE OTHER HAND, THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 10. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE A RE OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F T. R. F. LTD. (SUPRA) IN WHICH IT WAS HELD AS UNDER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH T HAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOU GH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACC OUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE A SSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBIT ED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSI NG THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE ITA NO.3682/AHD/2007 PERFECT SECURITY SERVICES VS ACIT, CIR-2, AHMEDABAD 7 PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATE D ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETH ER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OF F IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEE N UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MAT TER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AN D THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 11. THE LEARNED CIT(A) ENHANCED THE INCOME OF THE A SSESSEE BY RELYING UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISES & ENGINEERS PVT. LTD. (SUPRA). IT FURTH ER APPEARS THAT THERE WOULD HAVE BEEN A DIFFERENCE IN THE AMOUNT OF BAD D EBTS SHOWN BY THE ASSESSEE AND THE PARTIES BECAUSE THERE WERE CONTINU ED BUSINESS RELATION BETWEEN THE ASSESSEE AND THE PARTIES IN RESPECT OF WHOM THE ASSESSEE CLAIMED BAD DEBTS. THE MATTER, THEREFORE, REQUIRES RECONSIDERATION AT THE LEVEL OF THE AO IN VIEW OF THE RECENT JUDGMENT OF T HE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA). WE ACCO RDINGLY, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THIS IS SUE TO THE FILE OF THE AO WITH DIRECTION TO GIVE SPECIFIC FINDINGS ON THE ABO VE ISSUE IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F T. R. F. LTD. (SUPRA). AS A RESULT, GROUND NO.4 OF THE APPEAL OF THE ASSES SEE IS ALLOWED FOR STATISTICAL PURPOSES. 12. NO OTHER POINT IS ARGUED OR PRESSED. 13. AS A RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED ON 11-06-2010 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 11-06-2010 LAKSHMIKANT/- ITA NO.3682/AHD/2007 PERFECT SECURITY SERVICES VS ACIT, CIR-2, AHMEDABAD 8 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD