Rakesh Kumar Jain, Narasapuram V. ITO, Ward-1, Palacole

ITA 39/VIZ/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6615 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 09-03-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D K SONAWAL
• Keywords: Business expenditure
• Section: 143(3); 133A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 38 & 39 / VIZ /201 8 (ASST. YEAR : 20 12 - 13 & 20 13 - 1 4 ) RAKESH KUMAR JAIN, S/O SRI JAVANMAL , D.NO. 5 - 9 - 6/37, MAIN ROAD , NARSAPUR, W.G. DISTRICT. V S . IT O , WARD - 1, PALAKOL . PAN NO. AFPPK 1362 P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV OCATE . DEPARTMENT BY : SHRI D.K. SONAWAL CIT DR DATE OF HEARING : 20 / 0 6 /201 9 . DATE OF PRONOUNCEMENT : 02 / 0 8 /201 9 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THESE APPEAL S BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDER S OF COMMISSIONER OF INCOME TAX (APPEALS) - 12 , HYDERABAD , BOTH DATED 22 / 12 /201 7 FOR THE ASSESSMENT YEARS 2012 - 13 & 20 13 - 1 4 . SINCE FACTS AND ISSUES ARE COMMON, CLUBBED AND HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER . 2. FACTS OF THE CASE, IN BRIEF, ARE THAT ASSESSEE IS THE PROPRIETOR OF M/S. JAIN JAWANMAL RAKESH KUMAR BANKERS . A 2 ITA NO. 38 & 39 /VIZ/2018 ( RAKESH KUMAR JAIN ) SURVEY OPERATION U/SEC. 133A OF THE ACT WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 08/01/2013 . THE ASSESSEE HAS FILED HIS RETURN OF INCOME FOR THE A.Y. 2012 - 13 BY DECLARING TOTAL INCOME OF RS.5,68,970/ - . CONSEQUENT TO THE SURVEY , THE ASSESSEES CASE WAS REOPENED U/SEC. 148 OF THE ACT AND AFTER FOLLOWING DU E PROCEDURE, ASSESSMENT WAS COMPLETED U/SEC. 143(3) R.W.S. 147 OF THE ACT ON 30/09/2015. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOTED THAT DURING THE YEAR , THE ASSESSEE MAINTAINED BOOKS OF ACCOUNTS ON CASH BASIS IN RESPECT OF INTEREST RECEIPTS . HOWEVER, IT IS SEEN THAT IN RESPECT OF PAYMENTS, PHYSICAL PAYMENT DID NOT TAKE PLACE AND ONLY BOOK ENTRIES WERE MADE AS PER MERCANTILE SYSTEM. SINCE UNIFORM METHOD OF ACCOUNTING IS TO BE FOLLOWED, THE ONLY AMOUNT ACTUALLY PAID DURING THE YEAR TOWARDS IN TEREST PAID OUTSTANDING WERE CONSIDERED AND EXCESS OF INTEREST CREDITED OF RS. 16,95,733/ - (INTEREST CREDITS OF RS.21,22,799 INTEREST PAYMENTS OF RS. 4,27,066) IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3 . ON APPEAL, LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBSERVING THAT THE ASSESSEE IS IN THE BUSINESS OF PRAWN BROKING AND RECEIVED INTEREST IS HIS PRIMARY SOURCE OF INCOME. THE ASSESSEE HIMSELF HAS CHOSEN CASH SYSTEM OF ACCOUNT FOR MAINTENA NCE OF HIS BOOKS OF ACCOUNT AND ALL THE INTEREST RECEIPTS 3 ITA NO. 38 & 39 /VIZ/2018 ( RAKESH KUMAR JAIN ) ARE BEING ACCOUNTED FOR ON RECEIPT BASIS. AS AGAINST THIS, THE ASSESSEE IS CLAIMING INTEREST PAYMENTS ON MERCANTILE BASIS, ON THE PRETEXT THAT THE PAYEES THEMSELVES REQUESTED THE ASSESSEE TO RETAIN THE INTEREST PAYMENTS. ACCORDINGLY, CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 4 . ON BEING AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THIS TRIBUNAL. 5. LD. COUNSEL FOR THE ASSESSEE HAS RELIED ON THE GROUNDS OF APPEAL, WHEREAS LD.DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BELOW. 7 . IN THIS CASE, THE ASSESSING OFFICER HAS MADE THE ADDITION ON THE GROUND THAT ASSESSEE FOLLOWED CASH SYSTEM IN RESPECT OF INTEREST RECEIPTS , WHEREAS FOR PAYMENTS , FOLLOW ED MERCANTILE SYSTEM OF ACCOUNTING . THE CASE OF THE ASSESSEE IS THAT THE PAYEES THEMSELVES REQUESTED THE ASSESSEE TO RETAIN THE INTEREST PAYMENTS, THEREFORE HE FOLLOW ED MERCANTILE SYSTEM OF ACCOUNTING. T HE ASSESSEE HAS NOT GIVEN SATISFACTORY EXPLANATION BEFORE THE LD.CIT(A) , THEREFORE LD. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. EVEN BEFORE US, ASSESSEE HAS NOT GIVEN ANY EXPLANATION WHY HE IS FOLLOW ING TWO DIFFERENT MET H ODS FOR RECEIPTS 4 ITA NO. 38 & 39 /VIZ/2018 ( RAKESH KUMAR JAIN ) AND PAYMENTS . WE HAVE GONE THROUGH THE ORDER OF THE LD.CIT(A) AND FIND NO ERROR IN IT . THE LD. CIT(A) HAS CONSIDERED ALL THE FACTS AND CIRCUMSTANCES AND DECIDE D THE ISSUE. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: - 6.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AS WELL AS THE ORDER OF THE ASSESSING OFFICER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS , THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD MAINTAINED ITS BOOKS OF ACCOUNTS ON CASH BASIS IN RESPECT OF INTEREST RECEIPTS. HOWEVER, HE FOUND THAT THE INTEREST PAYMENTS WERE BEING CLAIMED ON MERCANTILE BASIS, WITHOUT MAKING THE ACTUAL PAYMENTS, A ND THEREFORE, THE AO REJECTED THE METHOD OF ACCOUNTING FOLLOWED BY THE ASSESSEE, AND DISALLOWED THE INTEREST PAYMENTS CLAIMED ON MERCANTILE BASIS TO THE TUNE OF RS.16,95,733 JJHE CONTENTION OF THE APPELLANT'S AR, IN THIS REGARD, IS THAT THE INTEREST AMOUNTS CLAIMED WERE IN RESPECT OF MEMBERS OF THE APPELLANT'S FAMILY, AND THE AMOUNTS WERE NOT PAID IN ORDER TO AVOID A DUPLICATION OF TRANSACTIONS. IN SUPPORT OF HIS CONTENTION, THE APPELLANT'S AR HAS RELIED UPON A NUMBER OF JUDGMENTS, INCLUDING THAT OF THE HON' BLE APEX COURT IN THE CASE OF J. B.BODA AND CO. P. LTD V CBDT (1997) 223 ITR 271. THE JUDGMENT RELIED UPON BY THE APPELLANT'S AR IS, HOWEVER, FOUND TO BE IRRELEVANT, CONSIDERING THE FACTS OF THE PRESENT CASE. THE JUDGMENT WAS GIVEN BY THE HON'BLE APEX COURT IN THE CONTEXT OF SEC.4313; AND IT WAS IN THIS CONTEXT THAT THE HON'BLE APEX COURT CHARACTERIZED TWO - WAY TRANSACTION AS 'AN EMPTY FORMALITY AND MEANINGLESS RITUAL'. IN THE CASE OF THE APPELLANT, HOWEVER, THE CONTEXT IS ENTIRELY DIFFERENT. FIRST OF ALL, IT NEEDS TO BE NOTED THAT THE APPELLANT IS IN THE BUSINESS OF PAWN BROKING, AND THEREFORE, THE RECEIPT OF INTEREST IS HIS PRIMARY SOURCE OF INCOME. THE APPELLANT HIMSELF HAS CHOSEN THE CASH SYSTEM OF ACCOUNTING FOR MAINTAINING HIS BOOKS OF ACCOUNTS, AND ALL THE INTEREST RECEIPTS ARE BEING ACCOUNTED FOR ON RECEIPT BASIS. AS AGAINST THIS, THE APPELLANT IS CLAIMING INTEREST PAYMENTS ON MERCANTILE BASIS, ON THE PRETEXT THAT THE PAYEES THEMSELVES REQUESTED THE APPELLANT TO RETAIN THE INTEREST PAYMENTS. THIS CONTEN TION OF THE APPELLANT IS ENTIRELY BASELESS, AND CANNOT BE ACCEPTED. THE PAYEES ARE ALL RELATIVES OF THE APPELLANT, AND THE APPELLANT'S AR HAS HIMSELF STATED THAT 'PAYING THEM THE INTEREST AND GETTING THE SAME AMOUNT BACK AS 5 ITA NO. 38 & 39 /VIZ/2018 ( RAKESH KUMAR JAIN ) FURTHER LOANS WOULD BE UNNECESSA RY'. THIS STATEMENT ITSELF MAKES IT CLEAR THAT THE INTENTION OF THE APPELLANT IS NEVER TO MAKE THE PAYMENTS OF INTEREST TO THESE PAYEES, BUT THESE ARE IN FACT MERELY BOOK ENTRIES, AND MODUS OPERANDI FOLLOWED BY THE APPELLANT IN ORDER TO REDUCE THE AMOUNT O F INTEREST RECEIVED, AND THEREBY, DECREASE HIS TAX LIABILITY. ALSO, THE LOANS DO NOT APPEAR TO HAVE BEEN TAKEN FOR BUSINESS PURPOSES, SO INTEREST PAID ON THEM IS EVEN OTHERWISE NOT ALLOWABLE AS BUSINESS EXPENDITURE. AS FAR AS THE OTHER CASE LAWS RELIED UPO N BY THE APPELLANT'S AR REGARDING SEC.145(3) ARE CONCERNED, THESE ALSO DO NOT HELP THE CASE OF THE APPELLANT IN ANY WAY, SINCE THEY ARE ALL DISTINGUISHABLE ON FACTS. THE PLEA OF THE APPELLANT NOT TO DISTURB THE EXISTING SYSTEM OF ACCOUNTING IS BASELESS, IN VIEW OF THE FACT THAT THE CASH SYSTEM OF ACCOUNTING HAS BEEN CHOSEN BY THE 3PPEL'ANT HIM3ELF, AND THERE IS NO REASON WHY THE SAME SYSTEM SHOULD NOT BE FOLLOWED FOR INTEREST PAYMENTS, AS IT IS FOLLOWED FOR INTEREST RECEIPTS. THE ADDITION MADE BY THE AO IS THEREFORE FOUND TO BE JUSTIFIED, AND ALL THE GROUNDS RAISED BY THE APPELLANT ON THIS ISSUE ARE DISMISSED . 8 . WE FIND NO REASON TO INTERFERE WITH THE ORDER PASSED BY THE LD. CIT(A). THUS, THIS APPEAL FILED BY THE ASSESSEE IS DISMISSED. 9. SO FAR AS ITA NO. 39/VIZ/2018 IS CONCERNED, FACTS INVOLVED IN THIS APPEAL ARE SIMILAR TO THE FACTS OF ITA NO. 3 8 /VIZ/2018. THEREFORE, OUR DECISION IN ITA NO. 3 8 /VIZ/2018 SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL ALSO. 10 . IN THE RESULT, BOTH THE APPEAL S FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON TH IS 0 2 N D DAY OF AUGUST , 201 9 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 0 2 N D AUGUST , 201 9 . 6 ITA NO. 38 & 39 /VIZ/2018 ( RAKESH KUMAR JAIN ) VR/ - COPY TO: 1. THE ASSESSEE - RAKESH KUMAR JAIN, S/O SRI JAVANMAL, D.NO. 5 - 9 - 6/37, MAIN ROAD, NARSAPUR, W.G. DISTRICT. 2. THE REVENUE ITO, WARD - 1, PALAKOL. 3. THE PR. CIT , RAJAMAHENDRAVARAM. 4. THE CIT(A) - 12, HYDERABAD. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.